M&EAA recently appraised the machinery & equipment of a carbon based products manufacturing company. The appraisals were provided for asset based loan considerations, and concluded under the Orderly Liquidation and Fair Market Value-Installed value concepts.
Orderly Liquidation Value is the estimated gross dollar amount which could typically be realized from an orderly sale of the subject assets, held under forced or distressed conditions, with a limited marketing period. Inherent in the definition is the disposal of all assets in an “as is” condition with all expenses of removal and transportation incurred by the buyer. It is assumed that a professionally managed sale would be conducted by a qualified party familiar with this type of equipment.
In the case of of the subject company, the values concluded reflect an approximate four month period in which to sell all items. It is assumed that sale proceedings would begin immediately upon the decision to cease operations. This is important as allowing the subject items to sit idle and unattended for an extended period of time could have a significant negative impact on value.
Fair Market Value–Installed is an opinion, expressed in terms of money, at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell and both having reasonable knowledge of relevant facts, considering market conditions for the asset being valued, independent of earnings generated by the business in which the property is or will be installed, as of a specific date.
The value definitions are based on the published definitions set forth by the American Society of Appraisers in the text, Valuing Machinery & Equipment (2005).
The subject machinery & equipment included, but was not limited to: raw material handling and conveying equipment; crushers & screens; a feed enhance reactor furnace with associated post combustion equipment; mixing & densifying equipment; a particle fusion reactor furnace with post combustion equipment; finishing & bagging equipment; material handling equipment; laboratory equipment.
Appraisal conclusions: the subject machinery & equipment is primarily utilized in the manufacture of products designated for use in the iron and steel industry. As would be expected, the installed value concluded for the subject machinery & equipment was high, due to the substantial costs associated with the installation of a complex dry products chemical processing facility. The value concluded for the subject machinery & equipment under removal, as also would be expected, was very low due primarily to excessive dismantling, rigging, and shipping costs.