Machinery and Equipment

1
Finding Value In Tough Times

• Machinery and Equipment
• Appraisals

2
Who uses m/e appraisals?

• Banks
• CPAs
• Attorneys
• Business Sellers/Buyers
• Tax professionals

3
Reasons for appraisals

• Buy/Sell Agreements
• Insurable Value
• Financing
• Tax Purposes
• Business Valuations
• Divorce Settlements
• Valuing Goodwill
• Estate Settlements
• SBA Loans

• Buyout Agreements
• Gift Planning
• Trust Agreements
• Retirement Planning
• Estate Valuations
• 1031 Exchanges
• Partnerships
• Dissolutions
• Litigation Support

4
How much is it worth?

• Fair Market Value in Continued Use (FMV)
• Orderly Liquidation Value (OLV)
• Forced Liquidation Value (FLV)

5
Restaurant

• FMV - Stays in Business - 250,000
• OLV - Liquidate over 120 to 180 days - 125,000
• FLV - Auction - 60,000

6
Jungle Gym

• FMV Stays in Business - 70,000
• OLV - 10,000
• FLV - 5,000

7
The role of obsolescence
8
Economic obsolescence

• Due to uncontrollable external factors
• Example A new runway expansion at airport
  creates new flight patterns and planes flying
  over homes

9
Functional obsolescence

• Not complying with recognized utility
• Features that are not practical or desirable

• Real Estate 1 car garage
• Computers hard drive capacity
• Televisions flat panel versus analog
• Data processing 350k to 35k in 5 years

10
Physical obsolescence

• Expected
• Excessive use
• Misuse
• Age
• Maintenance
• Classes
• Computers 3 years
• Trucks 7 to 10 years
• Manufacturing 20

11
Finding value

• Income approach
• Market data approach
• Cost less depreciation approach

12
Income approach

• Not often used
• No direct comparables
• Shop built
• No invoices
• Convert future benefits to present value
• Income and expenses directly measured

13
Market data approach

• Actual/similar sales comparison
• Ebay
• Best Buy

14
One of a kind market data approach

• Similar with same age
• Robbins
• Vermeer
• Ditch Witch
• Invoice/
• depreciation

15
Cost approach

• Assumes value of an asset cannot exceed cost to
  reconstruct or replace with another of like
  utility
• Historical data adjusted by inflation/depreciation
  to arrive at Reproduction Cost New (RCN)

16
Machinery/equipment Appraisals

• Same basic concepts as real estate
• Approaches, obsolescence, finding value
• Whats inside? Ask for help
• Always something new
• Certified/3rd party appraisal may be important