METHODS AND APPROACHES TO VALUE APPRAISAL OF MACHINERY AND EUIPMENT

Market Research Approach
This approach involves collection of market data pertaining to assets being appraised. Also known as the "Comparison Sales Approach". The primary goal of the market approach is to determine the desirability of the assets and recent sales or offerings of similar assets currently on the market in order to arrive at an indication of the most probable selling price for the assets being appraised. If comparable sales are not exactly similar to the asset being appraised, adjustments must be made to bring them as closely in line as possible with the subject property.

Cost Approach
This approach is based on the proposition that the informed purchaser would pay no more for a property than the cost of producing a substitute property, assuming the same utility as the subject property. It considers that the maximum value of a property to a knowledgeable buyer would be the amount currently required constructing or purchasing a new asset of equal utility. When subject asset is not new, the current cost must be adjusted for all forms of depreciation as of the effective date of the appraisal.

Income Approach
This approach considers value in relation to the present worth of future benefits derived from ownership and is usually measured through the capitalization of a specific level of income. This approach is the least common approach used in the valuation or appraisal of machinery and equipment since it is difficult to isolate income attributable to such assets.

Depreciation
Defined as the actual loss in value or worth of a property from all causes including those resulting from physical deterioration, functional obsolescence, and economic obsolescence.

Physical Deterioration
Form of depreciation where loss in value is due to factors inherent in the property itself and due to changes in design, or process resulting in inadequacy, over capacity, excess construction, lack of functional utility, or excess operating costs.

Economic Obsolescence
Form of depreciation, or loss in value, caused by unfavorable external conditions. These can include such elements as industry economics, availability of financing, loss of material and labor sources, passage of new legislation, and changes in ordinances.

Source: http://www.certified-equipment-appraisals.com/methods.html