CHAPTER 2:

Valuation of Machinery &

Equipment

1
Content

I. Introduction to Machinery and equipment and

machinery and equipment market
1) Concept, categories, and characteristics of machinery and
equipment

2) Machinery and equipment markets

3) Notes on valuation of machinery and equipment

II. Approaches and methods of machinery and

equipment valuation

2
Concept of machinery and equipment

❖Machinery: can be individual machine or production line.

Objects that are made up of many parts and have a
certain function, used to perform precisely or a series of
specialized jobs. Usually machinery consists of parts:
• Power unit.
• Transmission parts.
• Functional parts.
• Some have electrical and control components.
❖ Equipment: auxiliary parts, used to assist in the
operation of machinery.
→ Development trend of the equipment: compact, versatile and can be
linked with many other devices.

3
Classification of machinery and equipment

❖ Based on accounting record:

▪ Fixed assets:
▪ It is probable that future economic benefits will
flow from the use of the asset;
▪ Has a useful life of more than 1 year (meaning
this asset is in the business year)
▪ The historical cost of assets must be determined
reliably and have a value of VND 30,000,000
(Thirty million VND) or more.
▪ Tools: when the conditions of use time/value of fixed
assets are not satisfied

4
Classification of machinery and equipment

❖ Based on sector of use :

Machinery and equipment used in the field of agriculture;
transportation sector; aviation sector; building sector,…

5
Classification of machinery and equipment

❖ Based on the function:

❖ Dynamic machinery and equipment: Engine generators;
Generators, hydroelectricity, thermal power, wind power,
gas mixture; Transformers and power supply equipment
❖ Working machinery and equipment: Machine tools,
Tractors, Agricultural and forestry machinery, Water and
petroleum pumps, Metallurgical equipment, surface
treatment against rust and metal corrosion…
❖ Measuring and experimental working tools;
❖ Equipment and means of transport;
❖ Management equipment: Calculation and measurement
equipment; Machinery, information equipment, electronics
and informatics software for management

6
Classification of machinery and equipment

❖ Based on the nature:

▪ Specialized machinery and equipment: for a specific,
limited purpose. (e.g., concrete mixer)
▪ Ordinary machinery and equipment: having some
purpose of use or some common use functions (e.g.,
vehicles,...)

7
Features of machinery and equipment

❖ Removable: market position has little effect on the price of

machinery and equipment
❖ Popularity
❖ Diverse types: Depending on the use of each type of machinery
and equipment, the technical characteristics are different
❖ Limited life: depends on the natural environment, the level of the
user, the intensity, the time of use
❖ Operational efficiency depends on design guidelines: use
over design capacity -> overload; used below design capacity ->
inefficient
❖ High liquidity: can be transferred easily through trading and
exchange

8
Machinery and Equipment Markets

New
machinery
and
equipment
market Used
machinery
and
equipment
market

9
Machinery and Equipment Markets

❖ New machinery and equipment market:

▪ Market for trading new and unused machinery and equipment,
▪ The market provides new technology products with increasingly
superior features: low energy consumption, low material
consumption, compactness, high automation.
❖ Used machinery market:
▪ Market for trading used machinery and equipment,
▪ The price of machinery and equipment in this market is usually
cheap due to the intangible depreciation factor and the machines
and equipment themselves have fully depreciated their economic
value, so they are very suitable for the economic conditions of
developing countries.

10
Machinery and Equipment Markets (cont.)

Impact
factors

Forces Macro
participating policies
in the market
non-tariff
Producers Financial and policy
monetary
Buyers policy
tariff
Agent/Dis policy
Financial tributor others
providers

11
Notes in valuation of machinery and equpiment

❖ Market value is not always the value to look for in

valuation
▪ Also depend on the purpose of valuation?
❖ In different context, machinery and equipment’s value
may be different
▪ Discrete v.s integrated in-line operation-> value of
each part?
▪ Waiting time to sell → price?
❖ The role of machinery and equipment can be different in
different type of enterprises and sectors
▪ Metallurgical enterprises v.s high-tech enterprise?

12
Notes in valuation of machinery and equipment (cont.)
Installation cost is a major differentiating factor between machinery
and equipment and other tangible assets

13
Source: www.fraziercapital.com
Valuation approaches of machinery and equipment

Market approach

Basic approaches

Income approach Cost approach

14
1.Cost Approach Method

15
Cost approach method

❖ Content: estimate the current replacement/reproduction

cost of the equipment to be valued and then deduct the
loss due to various types of depreciation (if any).
▪ replacement cost: the cost of a similar /asset offering equivalent utility

▪ reproduction cost: the cost to recreating a replica of an asset

▪ depreciation adjustments are normally considered for Physical, Functional

and Economic Obsolescence

Value of machinery and equipment =

replacement/reproduction cost – depreciation

16
Cost approach method (cont.)

❖ Basic principles:
▪ Concept of highest and best use
▪ Substitution
▪ Contribution

❖ Applicable cases:
▪ Specialized machinery and equipment;
▪ Insurance purposes;
▪ Compare and confirm other valuation methods.

17
Cost approach method (cont.)

❖ Conditions apply:
▪ The appraiser must have sufficient technical
knowledge and experience
▪ Understand issues related to economic life,
remaining life, depreciation and obsolescence of
machinery and equipment (physical obsolescence,
functional obsolescence, economic obsolescence),...
▪ Understanding the operating principles,
manufacturing methods, production materials of
machinery and equipment.

18
Cost approach method (cont.)

❖ Steps:
1. Comprehensive assessment of the current state of
equipment and equipment to be valued

2. Estimate the current replacement/reproduction cost

3. Estimate the depreciation.

4. Estimated value of machinery and equipment = step 2

minus (-) step 3

19
Chi phí tái tạo & Chi phí thay thế
Reproduction Cost Replacement Cost
The cost of creating an exact replica of The cost of building an improvement of
the improvements, using the same equal utility, but using modern materials,
materials, design, layout, and level of techniques, layout, and design.
craftsmanship.
Replacement cost estimates are nearly
Reproduction cost must include the cost always lower than reproduction cost
of reproducing any features that are estimates, because it usually costs less to
excessive in quality or design, known as build a structure using modern materials
superadequacies and techniques.

Replacement cost takes into account only

the cost needed to create equal utility, so
superadequacies are ignored.

20
Depreciation/Obsolescence

Depreciation/Obsolescen
ce

Physical Functional Economic

Obsolescence Obsolescence obsolescence

23
Invisible depreciation/obsolescence

❖ Functional obsolescence:
• Excess capital costs: caused by changes in design,
material, technology, resulting in the availability of modern
equivalent assets with lower capital costs than the subject
asset.
• Excess operating costs: caused by improvements in design
or excess capacity resulting in availability of modern
equivalent assets with lower capital costs than the subject
asset
❖ Economic obsolescence:
▪ Arises when external factors affect an individual asset or
all the assets employed in the business and should be
deducted after physical deterioration and functional
obsolesce

24
Physical obsolescence

Can be measured in two ways:

1. Curable: Cost to cure/fix the obsolescence.
2. Incurable: Adjustment for physical obsolescence is
equivalent to the proportion of the expected total life
consumed.

Định giá tài sản (Asset Valuation) 25

Depreciation/Obsolescence - Example

Định giá tài sản (Asset Valuation) 26

Measure physical obsolescence

1. Age-life method: Based on effective age

2. Expert method: Based on the depreciation of of major
parts
3. Used ratio method: Based on the ratio of use compared
to the design
4. Accountancy methods of depreciation: Based on the
accumulated depreciation rate (for machinery and
equipment in the enterprises)

Định giá tài sản (Asset Valuation) 27

Measure physical obsolescence (Cont.)

❖ Age-life method:
Based on Effective Age and Life span of the machinery and
equipment

Effective Age
Depreciation Ratio = x 100%
Life Span/Economic life

- Effective age is the appraiser's estimate of the age of the structures

having weighted the chronological age, the degree of maintenance,
and the extent of modernization
- Effective age may, or may not, equate to the actual or chronological
age of the building since maintenance, design, etc., may increase or
decrease the aging process
- Life Span = Effective Age + Remaining Economic Life (Appraiser's
Estimate)
28
Example:

The depreciation rate of the HINO crane has the following

parameters: lifting capacity 20 tons, economic life of 18
years, effective life of 12 years (up to the time of valuation):

Depreciation rate=(Effective life/Economic life)x100%=

(12/18)x100 = 67%

29
Measure physical obsolescence (Cont.)

❖ Expert method: Based on the depreciation of major parts

Where:
H: Depreciation rate (%)
Hi: Depreciation rate of major technical parts i
Ti: The proportion of the value of part i in the total value of
machinery and equipment
n: Number of major technical parts.

30
 Example 1: Measure the depreciation of an automobile

Main parts Depreciation Value of the Proportion of

rate of part i automobile = part i (Ti)
(Hi) 1bil VND
A 50% 500tr 50%
B 40% 200tr 20%
C 45% 200tr 20%
D 35% 50tr 5%

Depreciation rate= (50%*50% + 40% *20% +

45%*25% + 35%*5%)/ 100% = …
Depreciation rate = (50%*50% + 40% *20% +
45%*20% + 35%*5%)/ 95% = …
31
 Example 2: Measure the depreciation of a light truck

A TOYOTA HI-AX light truck has the following parameters:

Contribution to
Depreciation rate of Proportion of
Main parts depreciation
part i (Hi) part i (Ti)
rate
1 Engine 20% 55% 11%
2 Chassis 15% 15% 2,25%
3 Power system 5% 20% 1%
4 Other system 5% 10% 0,5%

→ Depreciation rate
= [(20% x 55%)+(15% x 15%)+(5% x 20%)+(5% x 10%)]/100%
= 14,75%

32
Measure physical obsolescence (Cont.)

❖ Used ratio method: Based on the utilization rate at the

time of valuation
Used level
Depreciation rate = x 100%
Design level

❖ Example: A device is designed to perform well for 100,000

hours. At the time of valuation, that device has run for 10,000
hours, so the physical depreciation rate of that device is 10%
(10,000/100,000 X 100%).

33
Measure physical obsolescence (Cont.)

❖ Accountancy methods of depreciation: Based on

the accumulated depreciation rate

34
Accountancy methods of depreciation

❖ It is the systematic calculation and allocation of the

book value of an asset to production and business
expenses during the asset's useful life.
❖ Book value of machinery and equipment:
▪ It is the total actual expenses spent to buy the machine
until the machine is set into normal operation.
▪ Including:
• Purchased price of machine
• Cost of transportation, loading and unloading,
installation, testing operation
• Loan interest
• Taxes and registration fees

35
METHODS OF DEPRECIATION

1 The straight-line method

2 The reducing balance method

3 The sum of the digits method

36
 The straight-line method

❖ The straight-line method of depreciation involves a fixed dollar

amount of depreciation each year.
❖ Formula:
Depreciation Expense = Book value/Useful life

37
The straight-line method (cont.)

❖ Pros:
▪ Stable product price

▪ Amount of accumulated depreciation in the last year =

Original cost

▪ Very common, and the simplest, method of calculating

depreciation expense.
❖ Cons:
▪ The ability to recover capital is slow

▪ Does not reflect actual depreciation level of assets

▪ Not involve invisible depreciation

38
The straight-line method (cont.)

Example: A company buys a brand-new machine

▪ The invoiced price (VAT included) is VND 97 million
▪ Shipping cost is VND 4 million
▪ The cost of installation and testing is VND 1 million
▪ Purchase discount is VND 2 million
▪ Estimated useful life 5 years
▪ The technical life of the machine is 12 years

39
The straight-line method (cont.)

Book value= 97 + 4 + 1 – 2 = 100 mil

Depreciation expense = 100 mil/5 yrs= 20 mil
The depreciation expense per year for this machine
would be as follows:

Year Depreciation Depreciation Accumulated

rate expense depreciation
1 20% 20 20
2 20% 20 40
3 20% 20 60
4 20% 20 80
5 20% 20 100

40
 The reducing balance method
❖ Uses a fixed percent depreciation times the undepreciated balance:

Depreciation Expense= Beginning book value x Rate of

depreciation (T)

T = average depreciation rate (100%/useful life of asset) *

coefficient
Useful life Coefficient
Up to 4 years 1,5
4 to 6 years 2,0
More than 6 years 2,5

41
The reducing balance method (cont.)

❖ In the last years, when the annual depreciation

determined by the above method is equal to (or less
than) the average depreciation rate between the residual
value and the remaining useful years of the asset, from
that year the depreciation expense is calculated as the
remaining value of the asset (undepreciated balance)
divided by the remaining useful years of the asset.

42
 The reducing balance method (cont.)
Example 1. A machine worth 100 million dong, useful
years is 5 years: T = 20%*2 = 40%

Average Accum
Depreciation
depreciation ulated Undepre Adjusted
expense based
Year expenses for the ciated Deprecia
on reducing deprec
rest of useful balance tion
balance method iation
years
0 100
1 100*40% = 40 100/5=20 40 60 40
2 60*40% = 24 60/4=15 64 36 24
3 36*40% = 14,4 36/3=12 78,4 21,6 14,4
4 21,6*40% = 8,64 21,6/2=10,8 87,04 12,96 10,8
5 12,96*40%=5,184 92,224 7,776 10,8
Total 92,224 100
43
The reducing balance method (cont.)

Example 2. A machine worth 200 million dong, used for

10 years. Prepare depreciation expense table using
the adjusted declining balance method

44
The sum of the digits method (students consult)

45
2. Market Approach Method
(Comparable Transactions Method)

46
Market Approach Method

❖ The market approach determines the value of an asset based

on the selling price of comparable assets, in keeping with the
economic principle of substitution
❖ Formular:
Value = Price of comparative assets+/- Price Adjustment
❖ Applied principles:
▪ Substitution
▪ Contribution
❖ Applicable cases:
▪ the existing secondary market is sufficiently developed
▪ To confirm other valuation approaches.

47
Market Approach Method (cont.)

❖ Conditions to apply:
▪ Trading information (price, amount, conditions…) is
available and high reliability
▪ Market is stable;
▪ Comparative assets have similarities with objected assets
▪ experienced appraisers, knowledgeable about machinery
and equipment, understand the market situation.

48
Market Approach Method (cont.)

❖ Stages:
1. Collect information about the objected asset: transaction price,
listing or asking price, and comparability factors for similar
properties…
2. Choose 3-5 comparative assets from similar properties learned in
step 1
3. Select standard comparison units, comparator factors, build
analysis and comparison tables for each comparator element.
4. Adjust the difference between the comparable asset and the
objected asset based to the difference in comparability factors.
5. Determine the price of objected asset.

49
Similar characteristics of comparative asset

1) Have the same physical characteristics

2) Similar basic economic and technical parameters

3) Same function and purpose of use

4) Same quality

5) Interchangeable in use.

50
Select comparison assets
• The most typical and basic specifications of
1 machinery

• Terms of payment and accompanying

2 services

Machinery: machine structure, equipment, capacity, productivity, size

(length, width, waterline height,...), model, level of fuel consumption,
country of manufacture, year of manufacture, year put into use,
warranty, availability of replacement parts, etc.
Means of transport: tonnage, accompanying equipment, interior
amenities,...
Payment conditions and accompanying services: maintenance,
warranty, installation, instructions for use, assembly, and
accompanying replacement equipment… 51
Adjustment

❖ Analyze and compare to draw similarities and

differences in the selected comparative factors
between the comparable asset and the objected
asset, according to the principle of quantitative
comparative factors first, qualitative factors later

❖ Adjusted subjects: selling price/price converted to

standard units of comparable asset

❖ Adjustment basis: based on the difference of

comparative factors (quantitative/qualitative) between
the comparable asset and the objected asset.

52
Adjustment principles

❖ Based on the evidence collected in the market.

❖ Objected asset is a benchmark.
❖ When adjusting prices for the difference of one comparator,
the remaining comparators are fixed (as if they were the
same).
❖ If an element of the comparable asset is less than that of the
objected asset: adjust up (+) the price in standard units of the
comparable asset.
❖ If an element of the comparative asset is higher than the
objected asset: adjust down (-) the price in standard units of
the comparable asset.
❖ If an element of comparable asset similar to/same as the
objected asset, the price of the comparable asset remains
unchanged (without adjustment).
53
Adjustment method

❖ Absolute adjustment
▪ Comparative elements can be measured in $ (payment
conditions, additional part, installation fee…)
❖ Percentage adjustment
▪ Comparative elements cannot be measure in $ (year of
production, technical features…)
▪ Formular:
Adjustment level = (%Objected assets - %comparative asset)/
%comparative asset

54
Adjustment order

❖ Adjusting the group of factors related to the transaction

of the asset first, adjusting the group of factors
comparing the characteristics (technical - economic) of
the following asset.
The price, after adjusting for the group of factors
related to the transaction, is used to adjust for the
factor group of the characteristics of the asset.
❖ When adjusting comparable asset prices for each group
of factors, adjust absolute amount first, then percentage
adjustment.
The price after the absolute adjustment is used for
the percentage adjustment.
55
Notes

❖ It must be ensured that the difference between the price

of the comparable asset and the indicated price of the
asset is not too high or inconsistent with market
evidence.

❖ Make sure that the difference between each indicator

price and the average price of the indicator prices is no
more than 15%.

Định giá tài sản (Asset Valuation) 56

Example 1

The property to be appraised is a lot of 80 water pumps manufactured

in Taiwan in 2012, with a pump capacity of 10m3/hour, a water column
height of 15m, the remaining quality 85%, the purpose of valuation is to
sell the whole lot on the market.
Through collecting information on the market, the information at the
time of valuation is as follows:
- Water pump with the same brand made in Taiwan in 2012 pumping
capacity 10m3/hour, water column height 15m, 100% new quality,
selling price is 14mil VND per pump. (comparative asset 1)
- Water pump with the same brand made in Taiwan in 2012 pumping
capacity 10m3/hour, water column height 12m, 85% new quality, selling
price is 12mil VND per pump. (comparative asset 2)
- Water pump with the same brand made in Taiwan in 2014 pumping
capacity 10m3/hour, water column height 15m, 100% new quality,
selling price is 16.74mil per pump. (comparative asset 3)

Định giá tài sản (Asset Valuation) 58

Example 1 (cont.)

❖ The price of the pump manufactured in 2012 is 80% of the price of

the pump manufactured in 2014 with the same specifications.
❖ The price of the pump with water column height of 15m is 110% of
the price of the pump with water column height of 12m.
❖ The price of the pump with the remaining quality 85% is 80% of the
price of the pump with brand-new same year or manufacturing,
same specification.
❖ Buy 10 or more pieces get 50% deferred payment after 1 year
❖ Popular loan interest rate is 8%/year

Định giá tài sản (Asset Valuation) 60

 Example 1 (cont.)

Comparison Appraised Compara Comparab

Comparable asset 3
factors asset ble asset 1 le asset 2

Country of
Taiwan Taiwan Taiwan Taiwan
manufacturing
Year of
2012 2012 2012 2014
manufacturing
Remaining
85% 100% 85% 100%
quality
Water column
15m 15m 12m 15m
height
Wattage 10m3/hr 10m3/hr 10m3/hr 10m3/hr,
Price
16.74mil VND
14mil Buy 10 or more pcs
? 9mil VND
VND get 50% deferred
61
payment after 1 year
 Example 2

Need to evaluate the price of a SUMITOMO brand excavator with 80% remaining
quality. Market information on comparable properties:

105%

300kg/cm2: 106%
 3. INCOME APPROACH
▪ Direct capitalization method
▪ Discounted cash flow method

63
Income approach

❖ The income approach is a way to determine the value of

machinery and equipment, and production lines by
converting future cash flows obtained from machinery and
equipment, and production lines to present value (value at
the time of appraisal)
❖ Based on the principle that the machine, the devices is
valuable because it generates income for the owner
❖ Can be used to determine the value of appraised
machinery and equipment, and production lines on a
market value and non-market value basis.

64
Income approach (cont.)

Direct capitalization
method

Discounted cash flow

method

65
Direct capitalization method

Is an appraisal method that determines the value of

appraised machinery and equipment based on the
conversion of the expected STABLE annual net income
stream from machinery and equipment to the present
value by using the appropriate capitalization rate.
Formula:

V= I / R or V = I x GI
where:
V: present value
I: annual net income
R: capitalization rate
GI: income coefficient (GI = 1/R) 66
Direct capitalization method (cont.)

❖ Case applied: the income from machinery and

equipment is relatively stable (constant or varies by a
certain percentage) over the remaining useful life
(calculated by the remaining economic life) of the
machinery or equipment or permanently)
❖ Advantages: simples, easy to use; Based on the
financial basis to calculate, hence, it is very scientific
❖ Disadvantage: determining the exact capitalization rate
is complicated because asset investment is dependent
on the subjective will of each individual.

67
Direct capitalization method (cont.)

Stages:
1. Calculate the net operating income based on a pro
forma model.
2. Find the cap rate for the appropriate market and asset
class.
3. Divide the net operating income by the cap rate

68
Capitalization rate (Cap rate)

❖ Method 1: determine the capitalization rate based on the

percentage of loan capital to total investment capital, loan
capitalization coefficient and debt repayment capacity
❖ Method 2 (investment method)
R0=M x Rm + (1-M) x Re
Where:
R0 : Cap rate
M: Proportion of bank loans in total invested capital in assets
(1-M): Proportion of capital raised from shareholders in total invested
capital in assets
Rm: Return on capital
Re: Investor's expected interest rate.
❖ Method 3 (comparative method):
The capitalization rate of comparable properties is calculated
by dividing net operating income from property divided by
sales price. 69
Discounted cash flow method

❖ Determine the value of appraised machinery and

equipment based on the conversion of the expected future
cash flows from the machinery and equipment to the
present value using appropriate discount rate.
❖ Applied in case that income from machinery and
equipment changes over different periods (unstable)

70
Discounted cash flow method

❖ Advantages:
▪ Overcoming the disadvantages of the traditional income
capitalization method that does not include inflation and
the instability of income streams;
▪ Useful in analyzing important investments for decision
making
❖ Disadvantages:
▪ Using many assumptions, so it requires a lot of
information for analysis, forecasting (revenue/expenses)
in the future is not easy;
▪ The method is very complicated;
▪ Appraisers must have many years of experience and high
professional capacity
71
Discounted cash flow method (cont.)

❖ Stages:
1. Determine the future cash flow forecast period
2. Estimate net cash flow on the basis of estimated
income from the asset and estimated costs related to
the exploitation and operation of the asset.
3. Estimated asset value at the end of the forecast
period
4. Estimate the appropriate discount rate
5. Determine the asset value using the discounted cash
flow formula.

72
Discounted cash flow method (cont.)

❖ In case of irregular cash flow:

where:
V : Market value of asset
CFt : Income of year t
Vn : The salvage value of the asset in year n
n : number of years holding the asset
r : discount rate

❖ In case of steady cash flow:

73
Example 1

❖ Mr. A bought a Toyota car to run taxi. He plans to run taxi

in 5 years. Estimated annual income is 100, 150, 80,
100, 120 million respectively.
❖ At the end of the 5th year, Mr. A can sell the car for 200
million.
❖ Know the current market interest rate 5%/year.
❖ Valuate Mr. A's car?

Định giá tài sản (Assets Valuation) 74

Example 2
Company A bought the production line and put it into use in December
2005 with the original price of 1,420 million VND. Indicates that the
useful life of the machine line according to Decision 206/2003/QD-BTC
is 8 years.
Request:
1. Calculate the remaining value according to the accounting books of
the machine line in December 2008, assuming the machine line has
been depreciated using the adjusted decreasing balance method.
2. Appraisal of the above machine line in December 2008 for purchase
and sale purposes with expectations for future years as follows:
- Income before corporate income tax is equal over the years: 280
million VND
- Recoverable value at the end of the year: 15 million VND
- Corporate income tax rate: 25%
- Discount rate: 20%
Example 2 (cont.)

❖ Calculate residual value according to accounting books

▪ Shelf life, actual time of use
▪ Average depreciation rate?
▪ Fast depreciation rate?
▪ Table of depreciation over the years?
❖ Estimate earnings over the years using the discounted
cash flow method:
▪ Number of years of remaining use
▪ Income before tax over the years
▪ Return on capital in the last year
▪ Corporate income tax
▪ Depreciation?
▪ Discount rate?
GUIDELINES FOR SOME SITUATIONS OF MACHINERY
AND EQUIPMENT VALUATION

77
 Example 1. Income approach
A company is operating an equipment with an economic life of 10 years, the
equipment has been used for 5 years. The estimated annual net cash flow of the
equipment is VND 200 million, the current value of the equipment is VND 630
million and the liquidation value at the end of its life is zero. Currently, the company
is considering to buy a new equipment to replace the old one. Information about the
investment plan is as follows:
- This device is offered for sale by the supplier for: 1000 million VND
- The economic life of the equipment is 5 years
- Profit after tax received over the years from exploiting equipment is: 60, 90, 130,
150 and 100 million dong, respectively.
- The company uses the straight-line depreciation method
- Equipment is invested with 100% equity
- The 5-year government bond yield is 8.5%
- Risk surcharge is 3.5%
- The liquidation value of equipment at the end of the investment cycle is 20 million
VND
- The corporate income tax rate is 25%
Should the company implement the equipment replacement plan?
Example 2. Cost approach
Company A in Hanoi needs to appraise a spectroscopic device to include
in its accounting as a fixed asset. The detailed profile has the following
data:
Model: Michigan 250 manufactured by Michigan company of the US in
2000
Technical specifications:
- Optical system with 2 beams
- Wavelength 190-1200nm
- Photometric range -3.0 - 6.0 A
- Spectral slit width 0.5; 1.0; 2.0; 4.0nm
- Wavelength resolution: 0.1nm .
- Monochrome generator control speed: 4000nm/min
The configuration of the machine includes: Spectrometer Michigan Ex
250; Shelf; Deep soft; Computers and printers

Định giá tài sản (Assets Valuation) 79

Example 2. Cost approach (cont.)
The detailed profile has the following data:
- According to the import contract, the equipment was purchased
brand-new at the end of 2001 with a total value (including
transportation and installation costs at the laboratory) of VND 200
million. Equipment is used continuously from the time of purchase to
the present time (end of 2007)
- Actual inspection shows that the equipment is in normal operation.
- The actual level of depreciation corresponds to the level of
depreciation reflected on the laboratory's accounting books.
- Period of use of equipment as prescribed by the Ministry of Finance
is 10 years
- Laboratory applies the depreciation method according to the method
of decreasing balance with adjustment to the original cost of the
equipment as 200 million dong.
- Surveying market information shows that the current selling price of
a brand-new spectrometer is 550 million (including installation,
shipping and 10% VAT).
80
- Valuate the spectrometer.