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ASA Wisconsin Chapter
Meeting
Friday, April 24, 2015
Residual Values for
Machinery and Equipment
ASA presents:
Presenter:
Sharon Desfor, ASA
Upon webinar completion, the parti...
Why Should You Perform
Residual Value Projections?
(Source: U.S. Equipment Finance Market Study 2012-2013 from the Equipment Leasing & Foundation)
5
Comments on methodology
6
The majority of banks do not account for any
further inflation in their calculations. This
conservatism can be used to mit...
Sharon’s very opinionated opinion
8
What does “residual” mean?
What is a Residual Value?
“Essentially, the term residual value
means the value remaining after some
of the asset’s normal...
Is it even valid to give a future FMV?
11
Who Uses Them?
Owners of an asset,
12
Who Uses Them?
Operators of those assets,
13
Who Uses Them?
Lenders to those owners,
14
Who Uses Them?
Taxing authorities (IRS, Inland Revenue)
15
Who Uses Them?
Lessees of the assets,
16
Who Uses Them?
but mostly Lessors of assets.
17
When are they used?
Lease inception
Annual FASB compliance
audit
Asset substitution in a
lease
18
Question
How often are you asked to perform a residual
value projection?
A. At least weekly
B. Every month or two
C.2 or 3...
What are Residual Value
Projections Used For,
Anyway?
Why & How Are They Used?
What are residual value projections used for,
anyway?
• Determining an assets’ end-of-lease value...
Why & How Are They Used?
What are residual value projections used for,
anyway?
• Determining an assets’ end-of-lease value...
Why & How Are They Used?
What are residual value projections used for,
anyway?
• Determining an assets’ end-of-lease value...
Why & How Are They Used?
What are residual value projections used for,
anyway?
• Determining an assets’ end-of-lease value...
CONTROLLABLE NON-CONTROLLABLE
Lease Rate Buildup – An Oversimplification
25
Lease Rate Buildup An Over-Simplification
First - A Loan Example @ 7 year Fixed Rate
2.50
%
0.75
%
1.50
%
1.50
%
-.25%
6.0...
Lease Rate Buildup An Over-Simplification
Now – Price A Lease for 7 years
CLIENT
LOAN
RATE
LESS:
RESIDUAL
UPSIDE
BENEFITS
...
Question
Have you ever been asked to participate or
consult in lease rate negotiations?
A. Yes
B. No
C. It’s been so long ...
How NOT to Calculate
Residual Values
This is a blue book excerpt for the subject asset
2003 average Mid Time value is $1.52MM
2003 Factory List Price is $1.375...
The example uses only current market data
Common Errors (How NOT to calculate)
31
The example uses only current market data
• There is no way of establishing from the given data
whether the current value ...
The example uses only current market data
• There is no way of establishing from the given data
whether the current value ...
The example uses only current market data
• There is no way of establishing from the given data
whether the current value ...
• This is a compilation of past blue book data for the
subject asset
• What is the most common thing the asset manager
or ...
The inexperienced appraiser or the asset
manager often forgets to adjust the data for
inflation
Common Errors (How NOT to ...
Initial value at lease initiation
x
Does this look right? =
Common Errors (How NOT to calculate)
37
Failing to engage your brain to pick out
unrealistic projections
Common Errors (How NOT to calculate)
38
This particular asset ceased production in 1992
Once the resale values are adjusted for inflation, what
else needs adjustm...
Failure to adjust historical cost to a current
RCN is an incredibly common error for out-
of-production assets
Common Erro...
We’re moving on next to calculating the
depreciation rate, or decline rate.
Any questions?
41
Calculating Residual Values
First Line Of Calculations
43
First line of calculations
• How to calculate the current value as a % of RCN
Year of Mfr CPI Trend FactorHistoric Cost
Tr...
First line of calculations
• Normalize known current sales to standard
Year of Mfr CPI Trend FactorHistoric Cost
Trended
H...
First line of calculations
• Trend historical cost to RCN as needed
Year of Mfr CPI
Trend
Factor x Historic Cost
Trended
H...
First line of calculations
• Simple division
Year of Mfr CPI Trend FactorHistoric Cost
Trended
Historic Current Value % of...
First line of calculations
• These percentages are your first line of calculations
Year of Mfr CPI Trend FactorHistoric Co...
Second Line Of Calculations
49
Second line of calculations
• How to calculate the past value as a % of RCN
Year of Mfr CPI
Trend
Factor
Historic
Cost
Tre...
Normalize past sales to standard
Year of Mfr CPI
Trend
Factor
Historic
Cost
Trended
HistoricPast Values
Trended
Past % of ...
Second line of calculations
Trend past values as needed
Year of Mfr CPI
Trend
Factor
Historic
Cost
Trended
HistoricPast Va...
Second line of calculations
Trend historical cost to RCN if needed
Year of Mfr CPI
Trend
Factor
Historic
Cost
Trended
Hist...
Second line of calculations
Simple division
Year of Mfr CPI
Trend
Factor
Historic
Cost
Trended
HistoricPast Values
Trended...
Reconciliation
It is possible to reconcile to a most probable value
Trended Historic (TH)
2,350,000
Current % of RCN * TH
...
Reconciliation
Take the trended historic price as RCN
Trended Historic (TH)
2,350,000
Current % of RCN * TH
Annual
depreci...
Reconciliation
Use first line of calculations as long as stable
Trended Historic (TH)
2,350,000
Current % of RCN * TH
Annu...
Reconciliation
End with second line of calculations
Trended Historic (TH)
2,350,000
Current % of RCN * TH
Annual
depreciat...
Reconciliation
SLN or appropriate choice of market depreciation from last
of 1st to 2nd line of calculations
Trended Histo...
Reconciliation
Now look at it. Is it sensible? Realistic?
Trended Historic (TH)
2,350,000
Current % of RCN * TH
Annual
dep...
Other considerations
Different rates of depreciation for options and extras
Trended Historic (TH)
2,350,000
Current % of R...
Other considerations
Different ages of parts of
line or asset:
2008 Sikorsky S92A,
Corporate/VIP
configured, factory
demon...
Other considerations
63
Questions?
64
Upcoming ASA Education
For a complete listing of ASA’s upcoming educational offerings, visit
www.appraisers.org.
Let’s Con...
Upcoming SlideShare
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Asa wisconsin chapter april 2015 meeting presentation: residual values for machinery and equipment

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ASA Wisconsin Chapter April 2015 meeting presentation: Residual Values for Machinery and Equipment

Presented by Sharon Desfor, ASA of HeliValue$, Inc.

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Asa wisconsin chapter april 2015 meeting presentation: residual values for machinery and equipment

  1. 1. ASA Wisconsin Chapter Meeting Friday, April 24, 2015
  2. 2. Residual Values for Machinery and Equipment ASA presents: Presenter: Sharon Desfor, ASA Upon webinar completion, the participant will be better able to: Define a residual value and assess when, why, and how is it used Recognize common errors in residual values (how NOT to calculate them) Calculate equipment residual values Determine other considerations (different depreciation rates, lease return provisions, and using your own judgment)
  3. 3. Why Should You Perform Residual Value Projections?
  4. 4. (Source: U.S. Equipment Finance Market Study 2012-2013 from the Equipment Leasing & Foundation)
  5. 5. 5
  6. 6. Comments on methodology 6
  7. 7. The majority of banks do not account for any further inflation in their calculations. This conservatism can be used to mitigate their risk factor. Some will then calculate their own present values at various inflation rates just to see what kind of margins they might enjoy at lease termination, but then book the residual at the uninflated number. Comments on methodology 7
  8. 8. Sharon’s very opinionated opinion 8
  9. 9. What does “residual” mean?
  10. 10. What is a Residual Value? “Essentially, the term residual value means the value remaining after some of the asset’s normal useful life has been consumed. It can also refer to the value of the asset at a defined future point in time. Though the future value is often defined as the future fair market value, that’s not always the case. Again, it is important that the pertinent sections of the lease document be reviewed prior to performing any valuation in connection with a lease.” (Valuing Machinery and Equipment: The Fundamentals of Appraising Machinery and Technical Assets, Third Edition, American Society of Appraisers) 10
  11. 11. Is it even valid to give a future FMV? 11
  12. 12. Who Uses Them? Owners of an asset, 12
  13. 13. Who Uses Them? Operators of those assets, 13
  14. 14. Who Uses Them? Lenders to those owners, 14
  15. 15. Who Uses Them? Taxing authorities (IRS, Inland Revenue) 15
  16. 16. Who Uses Them? Lessees of the assets, 16
  17. 17. Who Uses Them? but mostly Lessors of assets. 17
  18. 18. When are they used? Lease inception Annual FASB compliance audit Asset substitution in a lease 18
  19. 19. Question How often are you asked to perform a residual value projection? A. At least weekly B. Every month or two C.2 or 3 times a year D.Once a year or less E. I’ve never been asked for a residual value projection before 19
  20. 20. What are Residual Value Projections Used For, Anyway?
  21. 21. Why & How Are They Used? What are residual value projections used for, anyway? • Determining an assets’ end-of-lease value 21
  22. 22. Why & How Are They Used? What are residual value projections used for, anyway? • Determining an assets’ end-of-lease value • The ultimate purpose is developing the lease rate 22
  23. 23. Why & How Are They Used? What are residual value projections used for, anyway? • Determining an assets’ end-of-lease value • The ultimate purpose is developing the lease rate • Fair rental calculations (remember ME204?) 23
  24. 24. Why & How Are They Used? What are residual value projections used for, anyway? • Determining an assets’ end-of-lease value • The ultimate purpose is developing the lease rate • Fair rental (remember ME204?) • Lease rate buildup 24
  25. 25. CONTROLLABLE NON-CONTROLLABLE Lease Rate Buildup – An Oversimplification 25
  26. 26. Lease Rate Buildup An Over-Simplification First - A Loan Example @ 7 year Fixed Rate 2.50 % 0.75 % 1.50 % 1.50 % -.25% 6.00 % COST OF FUNDS RISK [LOSS PROVISION] OPERATING EXPENSES PROFIT LESS: FEES CLIENT RATE 26
  27. 27. Lease Rate Buildup An Over-Simplification Now – Price A Lease for 7 years CLIENT LOAN RATE LESS: RESIDUAL UPSIDE BENEFITS LESS: PARTIAL TAX BENEFITS LESS: LIKE KIND EXCHANGE BENEFITS LOWER LEASE RATE 27
  28. 28. Question Have you ever been asked to participate or consult in lease rate negotiations? A. Yes B. No C. It’s been so long I’m a virgin again. 28
  29. 29. How NOT to Calculate Residual Values
  30. 30. This is a blue book excerpt for the subject asset 2003 average Mid Time value is $1.52MM 2003 Factory List Price is $1.375MM $1.52MM divided by $1.375MM is 110.5% Therefore, in ten years the subject asset will be worth 110.5% of its new acquisition price What is the error? Common Errors (How NOT to calculate) 30
  31. 31. The example uses only current market data Common Errors (How NOT to calculate) 31
  32. 32. The example uses only current market data • There is no way of establishing from the given data whether the current value of the asset is historically relevant Common Errors (How NOT to calculate) 32
  33. 33. The example uses only current market data • There is no way of establishing from the given data whether the current value of the asset is historically relevant The example uses an old historical price Common Errors (How NOT to calculate) 33
  34. 34. The example uses only current market data • There is no way of establishing from the given data whether the current value of the asset is historically relevant The example uses an old historical price • The correct price to use is the Replacement Cost New Common Errors (How NOT to calculate) 34
  35. 35. • This is a compilation of past blue book data for the subject asset • What is the most common thing the asset manager or appraiser will forget to do? Common Errors (How NOT to calculate) 35
  36. 36. The inexperienced appraiser or the asset manager often forgets to adjust the data for inflation Common Errors (How NOT to calculate) 36
  37. 37. Initial value at lease initiation x Does this look right? = Common Errors (How NOT to calculate) 37
  38. 38. Failing to engage your brain to pick out unrealistic projections Common Errors (How NOT to calculate) 38
  39. 39. This particular asset ceased production in 1992 Once the resale values are adjusted for inflation, what else needs adjustment? Common Errors (How NOT to calculate) 39
  40. 40. Failure to adjust historical cost to a current RCN is an incredibly common error for out- of-production assets Common Errors (How NOT to calculate) 40
  41. 41. We’re moving on next to calculating the depreciation rate, or decline rate. Any questions? 41
  42. 42. Calculating Residual Values
  43. 43. First Line Of Calculations 43
  44. 44. First line of calculations • How to calculate the current value as a % of RCN Year of Mfr CPI Trend FactorHistoric Cost Trended Historic Current Value % of RCN 2013 230.28 100.00% 2,350,000 2,350,000 2,350,000 100.00% 2012 226.4 101.71% 2,280,000 2,319,074 2,234,000 95.06% 2011 219.1 105.10% 2,202,000 2,314,361 2,118,000 90.13% 2010 216.6 106.32% 2,125,000 2,259,211 2,002,000 85.19% 2009 215.3 106.96% 1,965,000 2,101,719 1,886,000 80.26% 2008 211.1 109.09% 1,855,000 2,023,541 1,770,000 75.32% 2007 202.4 113.77% 1,750,000 1,991,057 1,720,000 73.19% 2006 198.3 116.13% 1,390,000 1,614,166 1,670,000 71.06% 2005 190.7 120.76% 1,325,000 1,600,005 1,620,000 68.94% 2004 185.2 124.34% 1,300,000 1,616,436 1,570,000 66.81%
  45. 45. First line of calculations • Normalize known current sales to standard Year of Mfr CPI Trend FactorHistoric Cost Trended Historic Current Value % of RCN 2013 230.28 100.00% 2,350,000 2,350,000 2,350,000 100.00% 2012 226.4 101.71% 2,280,000 2,319,074 2,234,000 95.06% 2011 219.1 105.10% 2,202,000 2,314,361 2,118,000 90.13% 2010 216.6 106.32% 2,125,000 2,259,211 2,002,000 85.19% 2009 215.3 106.96% 1,965,000 2,101,719 1,886,000 80.26% 2008 211.1 109.09% 1,855,000 2,023,541 1,770,000 75.32% 2007 202.4 113.77% 1,750,000 1,991,057 1,720,000 73.19% 2006 198.3 116.13% 1,390,000 1,614,166 1,670,000 71.06% 2005 190.7 120.76% 1,325,000 1,600,005 1,620,000 68.94% 2004 185.2 124.34% 1,300,000 1,616,436 1,570,000 66.81% •The circled current values are known, as is the RCN. •The highlighted values may be calculated by straight-line depreciation or other means.
  46. 46. First line of calculations • Trend historical cost to RCN as needed Year of Mfr CPI Trend Factor x Historic Cost Trended Historic Current Value % of RCN 2013 230.28 100.00% * 2,350,000 2,350,000 2,350,000 100.00% 2012 226.4 101.71% * 2,280,000 2,319,074 2,234,000 95.06% 2011 219.1 105.10% * 2,202,000 2,314,361 2,118,000 90.13% 2010 216.6 106.32% * 2,125,000 2,259,211 2,002,000 85.19% 2009 215.3 106.96% * 1,965,000 2,101,719 1,886,000 80.26% 2008 211.1 109.09% * 1,855,000 2,023,541 1,770,000 75.32% 2007 202.4 113.77% * 1,750,000 1,991,057 1,720,000 73.19% 2006 198.3 116.13% * 1,390,000 1,614,166 1,670,000 71.06% 2005 190.7 120.76% * 1,325,000 1,600,005 1,620,000 68.94% 2004 185.2 124.34% * 1,300,000 1,616,436 1,570,000 66.81%
  47. 47. First line of calculations • Simple division Year of Mfr CPI Trend FactorHistoric Cost Trended Historic Current Value % of RCN 2013 230.28 100.00% 2,350,000 2,350,000 2,350,000 100.00% 2012 226.4 101.71% 2,280,000 2,319,074 2,234,000 95.06% 2011 219.1 105.10% 2,202,000 2,314,361 2,118,000 90.13% 2010 216.6 106.32% 2,125,000 2,259,211 2,002,000 85.19% 2009 215.3 106.96% 1,965,000 2,101,719 1,886,000 80.26% 2008 211.1 109.09% 1,855,000 2,023,541 1,770,000 75.32% 2007 202.4 113.77% 1,750,000 1,991,057 1,720,000 73.19% 2006 198.3 116.13% 1,390,000 1,614,166 1,670,000 71.06% 2005 190.7 120.76% 1,325,000 1,600,005 1,620,000 68.94% 2004 185.2 124.34% 1,300,000 1,616,436 1,570,000 66.81% Divide Current Value by Trended Historic Cost.
  48. 48. First line of calculations • These percentages are your first line of calculations Year of Mfr CPI Trend FactorHistoric Cost Trended Historic Current Value % of RCN 2013 230.28 100.00% 2,350,000 2,350,000 2,350,000 100.00% 2012 226.4 101.71% 2,280,000 2,319,074 2,234,000 95.06% 2011 219.1 105.10% 2,202,000 2,314,361 2,118,000 90.13% 2010 216.6 106.32% 2,125,000 2,259,211 2,002,000 85.19% 2009 215.3 106.96% 1,965,000 2,101,719 1,886,000 80.26% 2008 211.1 109.09% 1,855,000 2,023,541 1,770,000 75.32% 2007 202.4 113.77% 1,750,000 1,991,057 1,720,000 73.19% 2006 198.3 116.13% 1,390,000 1,614,166 1,670,000 71.06% 2005 190.7 120.76% 1,325,000 1,600,005 1,620,000 68.94% 2004 185.2 124.34% 1,300,000 1,616,436 1,570,000 66.81%
  49. 49. Second Line Of Calculations 49
  50. 50. Second line of calculations • How to calculate the past value as a % of RCN Year of Mfr CPI Trend Factor Historic Cost Trended HistoricPast Values Trended Past % of RCN 2013 230.28 100.00% 2,350,000 2,350,000 1,370,000 1,370,000 58.30% 2012 226.4 101.71% 2,280,000 2,319,074 1,375,000 1,398,564 59.51% 2011 219.1 105.10% 2,202,000 2,314,361 1,455,000 1,529,244 65.07% 2010 216.6 106.32% 2,125,000 2,259,211 1,455,000 1,546,895 65.83% 2009 215.3 106.96% 1,965,000 2,101,719 1,685,000 1,802,238 76.69% 2008 211.1 109.09% 1,855,000 2,023,541 1,237,500 1,349,936 57.44% 2007 202.4 113.77% 1,750,000 1,991,057 987,500 1,123,525 47.81% 2006 198.3 116.13% 1,390,000 1,614,166 987,500 1,146,755 48.80% 2005 190.7 120.76% 1,325,000 1,600,005 987500 1,192,457 50.74% 2004 185.2 124.34% 1,300,000 1,616,436 912500 1,134,614 48.28%
  51. 51. Normalize past sales to standard Year of Mfr CPI Trend Factor Historic Cost Trended HistoricPast Values Trended Past % of RCN 2013 230.28 100.00% 2,350,000 2,350,000 1,370,000 1,370,000 58.30% 2012 226.4 101.71% 2,280,000 2,319,074 1,375,000 1,398,564 59.51% 2011 219.1 105.10% 2,202,000 2,314,361 1,455,000 1,529,244 65.07% 2010 216.6 106.32% 2,125,000 2,259,211 1,455,000 1,546,895 65.83% 2009 215.3 106.96% 1,965,000 2,101,719 1,685,000 1,802,238 76.69% 2008 211.1 109.09% 1,855,000 2,023,541 1,237,500 1,349,936 57.44% 2007 202.4 113.77% 1,750,000 1,991,057 987,500 1,123,525 47.81% 2006 198.3 116.13% 1,390,000 1,614,166 987,500 1,146,755 48.80% 2005 190.7 120.76% 1,325,000 1,600,005 987500 1,192,457 50.74% 2004 185.2 124.34% 1,300,000 1,616,436 912500 1,134,614 48.28% •The circled past values are known, as is the current value. •Highlighted values may be calculated by straight-line depreciation or other means. Second line of calculations 51
  52. 52. Second line of calculations Trend past values as needed Year of Mfr CPI Trend Factor Historic Cost Trended HistoricPast Values Trended Past % of RCN 2013 230.28 100.00% 2,350,000 2,350,000 1,370,000 1,370,000 58.30% 2012 226.4 101.71% 2,280,000 2,319,074 1,375,000 1,398,564 59.51% 2011 219.1 105.10% 2,202,000 2,314,361 1,455,000 1,529,244 65.07% 2010 216.6 106.32% 2,125,000 2,259,211 1,455,000 1,546,895 65.83% 2009 215.3 106.96% 1,965,000 2,101,719 1,685,000 1,802,238 76.69% 2008 211.1 109.09% 1,855,000 2,023,541 1,237,500 1,349,936 57.44% 2007 202.4 113.77% 1,750,000 1,991,057 987,500 1,123,525 47.81% 2006 198.3 116.13% 1,390,000 1,614,166 987,500 1,146,755 48.80% 2005 190.7 120.76% 1,325,000 1,600,005 987500 1,192,457 50.74% 2004 185.2 124.34% 1,300,000 1,616,436 912500 1,134,614 48.28% 52
  53. 53. Second line of calculations Trend historical cost to RCN if needed Year of Mfr CPI Trend Factor Historic Cost Trended HistoricPast Values Trended Past % of RCN 2013 230.28 100.00% 2,350,000 2,350,000 1,370,000 1,370,000 58.30% 2012 226.4 101.71% 2,280,000 2,319,074 1,375,000 1,398,564 59.51% 2011 219.1 105.10% 2,202,000 2,314,361 1,455,000 1,529,244 65.07% 2010 216.6 106.32% 2,125,000 2,259,211 1,455,000 1,546,895 65.83% 2009 215.3 106.96% 1,965,000 2,101,719 1,685,000 1,802,238 76.69% 2008 211.1 109.09% 1,855,000 2,023,541 1,237,500 1,349,936 57.44% 2007 202.4 113.77% 1,750,000 1,991,057 987,500 1,123,525 47.81% 2006 198.3 116.13% 1,390,000 1,614,166 987,500 1,146,755 48.80% 2005 190.7 120.76% 1,325,000 1,600,005 987500 1,192,457 50.74% 2004 185.2 124.34% 1,300,000 1,616,436 912500 1,134,614 48.28% 53
  54. 54. Second line of calculations Simple division Year of Mfr CPI Trend Factor Historic Cost Trended HistoricPast Values Trended Past % of RCN 2013 230.28 100.00% 2,350,000 2,350,000 1,370,000 1,370,000 58.30% 2012 226.4 101.71% 2,280,000 2,319,074 1,375,000 1,398,564 59.51% 2011 219.1 105.10% 2,202,000 2,314,361 1,455,000 1,529,244 65.07% 2010 216.6 106.32% 2,125,000 2,259,211 1,455,000 1,546,895 65.83% 2009 215.3 106.96% 1,965,000 2,101,719 1,685,000 1,802,238 76.69% 2008 211.1 109.09% 1,855,000 2,023,541 1,237,500 1,349,936 57.44% 2007 202.4 113.77% 1,750,000 1,991,057 987,500 1,123,525 47.81% 2006 198.3 116.13% 1,390,000 1,614,166 987,500 1,146,755 48.80% 2005 190.7 120.76% 1,325,000 1,600,005 987500 1,192,457 50.74% 2004 185.2 124.34% 1,300,000 1,616,436 912500 1,134,614 48.28% Divide Trended Past Value by Trended Historic Cost. 54
  55. 55. Reconciliation It is possible to reconcile to a most probable value Trended Historic (TH) 2,350,000 Current % of RCN * TH Annual depreciation Most Probable Residual Value Past % of RCN * TH Annual depreciation 100.00% 2,350,000 $2,350,000 100.00% 58.30% 1,370,000 95.06% 2,234,000 4.94% $2,234,000 95.06% 57.30% 1,346,458 0.86% 90.13% 2,118,000 4.94% $2,118,000 90.13% 56.29% 1,322,916 0.86% 85.19% 2,002,000 4.94% $2,002,000 85.19% 55.29% 1,299,374 0.86% 80.26% 1,886,000 4.94% $1,886,000 80.26% 54.29% 1,275,832 0.86% 75.32% 1,770,000 4.94% $1,770,000 75.32% 53.29% 1,252,290 0.86% 73.19% 1,720,000 2.13% $1,642,916 69.91% 52.29% 1,228,748 0.86% 71.06% 1,670,000 2.13% $1,515,832 64.50% 51.29% 1,205,206 0.86% 68.94% 1,620,000 2.13% $1,388,748 59.10% 50.28% 1,181,664 0.86% 66.81% 1,570,000 2.13% $1,261,664 53.69% 49.28% 1,158,122 0.86% 64.68% 1,520,000 2.13% $1,134,580 48.28% 48.28% 1,134,580 0.86% 55
  56. 56. Reconciliation Take the trended historic price as RCN Trended Historic (TH) 2,350,000 Current % of RCN * TH Annual depreciation Most Probable Residual Value Past % of RCN * TH Annual depreciation 100.00% 2,350,000 $2,350,000 100.00% 58.30% 1,370,000 95.06% 2,234,000 4.94% $2,234,000 95.06% 57.30% 1,346,458 0.86% 90.13% 2,118,000 4.94% $2,118,000 90.13% 56.29% 1,322,916 0.86% 85.19% 2,002,000 4.94% $2,002,000 85.19% 55.29% 1,299,374 0.86% 80.26% 1,886,000 4.94% $1,886,000 80.26% 54.29% 1,275,832 0.86% 75.32% 1,770,000 4.94% $1,770,000 75.32% 53.29% 1,252,290 0.86% 73.19% 1,720,000 2.13% $1,642,916 69.91% 52.29% 1,228,748 0.86% 71.06% 1,670,000 2.13% $1,515,832 64.50% 51.29% 1,205,206 0.86% 68.94% 1,620,000 2.13% $1,388,748 59.10% 50.28% 1,181,664 0.86% 66.81% 1,570,000 2.13% $1,261,664 53.69% 49.28% 1,158,122 0.86% 64.68% 1,520,000 2.13% $1,134,580 48.28% 48.28% 1,134,580 0.86% 56
  57. 57. Reconciliation Use first line of calculations as long as stable Trended Historic (TH) 2,350,000 Current % of RCN * TH Annual depreciation Most Probable Residual Value Past % of RCN * TH Annual depreciation 100.00% 2,350,000 $2,350,000 100.00% 58.30% 1,370,000 95.06% 2,234,000 4.94% $2,234,000 95.06% 57.30% 1,346,458 0.86% 90.13% 2,118,000 4.94% $2,118,000 90.13% 56.29% 1,322,916 0.86% 85.19% 2,002,000 4.94% $2,002,000 85.19% 55.29% 1,299,374 0.86% 80.26% 1,886,000 4.94% $1,886,000 80.26% 54.29% 1,275,832 0.86% 75.32% 1,770,000 4.94% $1,770,000 75.32% 53.29% 1,252,290 0.86% 73.19% 1,720,000 2.13% $1,642,916 69.91% 52.29% 1,228,748 0.86% 71.06% 1,670,000 2.13% $1,515,832 64.50% 51.29% 1,205,206 0.86% 68.94% 1,620,000 2.13% $1,388,748 59.10% 50.28% 1,181,664 0.86% 66.81% 1,570,000 2.13% $1,261,664 53.69% 49.28% 1,158,122 0.86% 64.68% 1,520,000 2.13% $1,134,580 48.28% 48.28% 1,134,580 0.86% 57
  58. 58. Reconciliation End with second line of calculations Trended Historic (TH) 2,350,000 Current % of RCN * TH Annual depreciation Most Probable Residual Value Past % of RCN * TH Annual depreciation 100.00% 2,350,000 $2,350,000 100.00% 58.30% 1,370,000 95.06% 2,234,000 4.94% $2,234,000 95.06% 57.30% 1,346,458 0.86% 90.13% 2,118,000 4.94% $2,118,000 90.13% 56.29% 1,322,916 0.86% 85.19% 2,002,000 4.94% $2,002,000 85.19% 55.29% 1,299,374 0.86% 80.26% 1,886,000 4.94% $1,886,000 80.26% 54.29% 1,275,832 0.86% 75.32% 1,770,000 4.94% $1,770,000 75.32% 53.29% 1,252,290 0.86% 73.19% 1,720,000 2.13% $1,642,916 69.91% 52.29% 1,228,748 0.86% 71.06% 1,670,000 2.13% $1,515,832 64.50% 51.29% 1,205,206 0.86% 68.94% 1,620,000 2.13% $1,388,748 59.10% 50.28% 1,181,664 0.86% 66.81% 1,570,000 2.13% $1,261,664 53.69% 49.28% 1,158,122 0.86% 64.68% 1,520,000 2.13% $1,134,580 48.28% 48.28% 1,134,580 0.86% 58
  59. 59. Reconciliation SLN or appropriate choice of market depreciation from last of 1st to 2nd line of calculations Trended Historic (TH) 2,350,000 Current % of RCN * TH Annual depreciation Most Probable Residual Value Past % of RCN * TH Annual depreciation 100.00% 2,350,000 $2,350,000 100.00% 58.30% 1,370,000 95.06% 2,234,000 4.94% $2,234,000 95.06% 57.30% 1,346,458 0.86% 90.13% 2,118,000 4.94% $2,118,000 90.13% 56.29% 1,322,916 0.86% 85.19% 2,002,000 4.94% $2,002,000 85.19% 55.29% 1,299,374 0.86% 80.26% 1,886,000 4.94% $1,886,000 80.26% 54.29% 1,275,832 0.86% 75.32% 1,770,000 4.94% $1,770,000 75.32% 53.29% 1,252,290 0.86% 73.19% 1,720,000 2.13% $1,642,916 69.91% 52.29% 1,228,748 0.86% 71.06% 1,670,000 2.13% $1,515,832 64.50% 51.29% 1,205,206 0.86% 68.94% 1,620,000 2.13% $1,388,748 59.10% 50.28% 1,181,664 0.86% 66.81% 1,570,000 2.13% $1,261,664 53.69% 49.28% 1,158,122 0.86% 64.68% 1,520,000 2.13% $1,134,580 48.28% 48.28% 1,134,580 0.86% 59
  60. 60. Reconciliation Now look at it. Is it sensible? Realistic? Trended Historic (TH) 2,350,000 Current % of RCN * TH Annual depreciation Most Probable Residual Value Past % of RCN * TH Annual depreciation 100.00% 2,350,000 $2,350,000 100.00% 58.30% 1,370,000 95.06% 2,234,000 4.94% $2,234,000 95.06% 57.30% 1,346,458 0.86% 90.13% 2,118,000 4.94% $2,118,000 90.13% 56.29% 1,322,916 0.86% 85.19% 2,002,000 4.94% $2,002,000 85.19% 55.29% 1,299,374 0.86% 80.26% 1,886,000 4.94% $1,886,000 80.26% 54.29% 1,275,832 0.86% 75.32% 1,770,000 4.94% $1,770,000 75.32% 53.29% 1,252,290 0.86% 73.19% 1,720,000 2.13% $1,642,916 69.91% 52.29% 1,228,748 0.86% 71.06% 1,670,000 2.13% $1,515,832 64.50% 51.29% 1,205,206 0.86% 68.94% 1,620,000 2.13% $1,388,748 59.10% 50.28% 1,181,664 0.86% 66.81% 1,570,000 2.13% $1,261,664 53.69% 49.28% 1,158,122 0.86% 64.68% 1,520,000 2.13% $1,134,580 48.28% 48.28% 1,134,580 0.86% 60
  61. 61. Other considerations Different rates of depreciation for options and extras Trended Historic (TH) 2,350,000 Current % of RCN Annual deprec. Most Likely Residual Value Optional equipment Past % of RCN Annual deprec. 100.00% 2,350,000 $2,350,000 100.00% $ 300,000 58.30% 1,370,000 95.06% 2,234,000 4.94% $2,234,000 95.06% $ 250,000 57.30% 1,346,458 0.86% 90.13% 2,118,000 4.94% $2,118,000 90.13% $ 200,000 56.29% 1,322,916 0.86% 85.19% 2,002,000 4.94% $2,002,000 85.19% $ 150,000 55.29% 1,299,374 0.86% 80.26% 1,886,000 4.94% $1,886,000 80.26% $ 100,000 54.29% 1,275,832 0.86% 75.32% 1,770,000 4.94% $1,770,000 75.32% $ 80,000 53.29% 1,252,290 0.86% 73.19% 1,720,000 2.13% $1,642,916 69.91% $ 70,000 52.29% 1,228,748 0.86% 71.06% 1,670,000 2.13% $1,515,832 64.50% $ 65,000 51.29% 1,205,206 0.86% 68.94% 1,620,000 2.13% $1,388,748 59.10% $ 65,000 50.28% 1,181,664 0.86% 66.81% 1,570,000 2.13% $1,261,664 53.69% $ 65,000 49.28% 1,158,122 0.86% 64.68% 1,520,000 2.13% $1,134,580 48.28% $ 65,000 48.28% 1,134,580 0.86% 61
  62. 62. Other considerations Different ages of parts of line or asset: 2008 Sikorsky S92A, Corporate/VIP configured, factory demonstrator Purchased in 2011 Corporate configuration removed, replaced with offshore interior Interior is 3 years younger than the airframe 62
  63. 63. Other considerations 63
  64. 64. Questions? 64
  65. 65. Upcoming ASA Education For a complete listing of ASA’s upcoming educational offerings, visit www.appraisers.org. Let’s Connect! • Facebook.com/ASAappraisers • @ASAappraisers • Linkedin.com/company/american-society-of-appraisers • Youtube.com/ASAappraisers • Appraisersnewsroom.org Thank you for joining us! 65

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