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Market Approach – Is the comparison with similar machinery, equipment and rolling stock that has sold or is currently offered for sale in the marketplace. By comparing the machinery, equipment and rolling stock appraised with similar items that have been sold recently or are currently offered for sale in the marketplace, an estimate can be made of the fair market value of the items. When making comparisons of similar items, pertinent factors of comparison are considered when arriving at an adjusted value such as: capacity, age, location and date of sale when applicable. Marketability of the machinery, equipment and rolling stock is also a determinant of value. Marketability, as a measure of demand, is approximated through recent sales in the marketplace of comparable items. Where actual sales are not available, relationships are often established and based upon dealer “asking prices” for comparable items.
Cost Approach - An estimate of the present replacement cost of the machinery, equipment and rolling stock less its accrued depreciation. Accrued Depreciation is the loss of value to the existing machinery, equipment and rolling stock because of its deficiencies, which may be defined as its physical deterioration, functional obsolescence or economic obsolescence. Physical deterioration occurs to the machinery, equipment and rolling stock from normal wear and tear, poor environmental conditions, improper care or maintenance, and or misuse and abuse. Functional obsolescence is the decreased capacity of the machinery, equipment and rolling stock to perform the function for which it is intended in terms of current standards and specifications. Functional obsolescence may stem either from a deficiency within the machinery, equipment and rolling stock such as poor design or outdated technological functions, or applications or over design. Economic obsolescence represents a loss in value from factors that are independent from the machinery, equipment and rolling stock. These factors are the over supply of similar machines currently within the marketplace, the international exchange rate fluctuations affecting the prices of similar machinery, equipment and rolling stock located in foreign markets, a depressed market for the end product manufactured by the machinery, equipment and rolling stock, or, the influence of improved technology currently offered within the machinery, equipment and rolling stock industry.
Once the deficiency of existing machinery, equipment and rolling stock is measured resulting in its accrued depreciation, it is necessary to deduct the accrued depreciation value from the replacement cost. Therefore, it would necessarily follow that if replacement cost new represents the upper limit of value, and if accrued depreciation from all of the factors is properly calculated and deducted from the replacement cost new, the resulting value will reflect an accurate indication of the fair market value of the machinery, equipment and rolling stock.
Income Approach – Is the present worth of future benefits of ownership and is not usually applied to individual items. This approach is generally used to value an aggregation of assets that will generate income for a business enterprise. These assets include, but are not limited to, tangible and intangible assets, working capital and good will.
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