LESSON NO. 2 Valuation of Machinery and Equipment — Case Studies ... · Valuation of Machinery and Equipment Case Studies 2.3 Despite the judge's acceptance of the going concern

2.1

LESSON NO. 2

Valuation of Machinery and Equipment — Case Studies

Assigned Reading

1. Real Estate Division. 2007. CPD 118: Machinery and Equipment Valuation. Vancouver: UBC RealEstate Division.

Lesson 2: Valuation of Machinery and Equipment — Case Studies

Recommended Reading

1. Real Estate Division. 2007. CPD 118: Machinery and Equipment Valuation. Vancouver: UBC RealEstate Division.

Lesson 1: Valuation of Machinery and Equipment

2. American Society of Appraisers. 2005. Valuing Machinery and Equipment: The Fundamentals ofAppraising Machinery and Technical Assets (Second Edition). Washington, DC: American Society ofAppraisers: www.appraisers.org

Learning Objectives

After completing this lesson, the student should be able to:

1. Discuss how machinery and equipment appraisals have been applied in legal proceedings and explainthe appraiser’s role in these cases.

2. Calculate and explain a variety of different value conclusions for machinery and equipment, dependingon the scope and intended use of the valuation assignment.

3. Discuss valuation considerations for a variety of M&E contexts, such as farm machinery, restaurants,and steel fabrication plants.

4. Identify the information resources necessary to complete various types of machinery and equipmentassignments.

5. Describe how machinery and equipment valuation applies the income, cost, and direct comparisonapproaches and evaluate the pros and cons of each for different situations.

Instructor's Comments

In the previous lesson, readers were introduced to the valuation of machinery and equipment. For years thisappraisal specialty has been exclusively handled by a small number of individuals trained in this discipline. Withthe expanding need for valuations of machinery and equipment and other similar property, real estate appraiserswill increasingly be called upon to conduct appraisals for machinery, equipment, and other chattels. Theselessons are intended to introduce the principles and techniques of this area, and offer a starting point forinterested readers to find further education and information on their own.

Lesson No. 2

2.2

This lesson provides additional illustrations of the theory and practice in machinery and equipment valuation.We will first survey some examples of legal cases where machinery and equipment valuation was a central issue.Several case studies are then provided to illustrate the appraisal process in machinery and equipment valuation.

Legal Cases Pertaining to Machinery and Equipment Valuation

The following are examples of legal cases that had machinery and equipment valuation as a central topic. Theyare provided to illustrate a few of the situations in which machinery and equipment needs to be appraised. Theyalso highlight that the practices in machinery and equipment valuation are subjective and the appropriatemethodology varies with circumstances.

Riverport Seafoods Ltd. v. Lunenburg (District)

This case involved an appeal against an assessment made against the appellant's lands and premises situated atKraut's Point in the Village of Riverport, Lunenburg County, Nova Scotia.

One of the prominent issues on appeal was that the assessment and decision of the Regional Assessment AppealCourt was greater than the actual cash value of the appellant's lands and premises and equipment. Another issueon appeal was that the Regional Assessment Appeal Court did not have proper or any regard to the state ofphysical depreciation, functional obsolescence, or economic obsolescence of the machinery assessed.

Mr. P. Clifton Burgoyne, who was the Regional Director of Assessment for the Municipality of Lunenburg,carried out the assessment of the appellant's property. Mr. Speed, the appellant's expert appraiser, also did avaluation of the machinery. The major difference between the appraisal values for machinery given by bothappraisers was caused by the use of different depreciation rates applied to the storage tanks.

J. Clemens decided that Mr. Burgoyne, appraiser for the respondent, was not an expert in the field of oil storagetanks, as he did not know their normal life expectancy or the age of the various tanks. Mr. Speed on the otherhand did a thorough inspection of the tanks; he incorporated such factors as the age of the tanks and futureusability when appraising their value. By using the Boeckh manual, Mr. Speed placed a value of $43,964 asopposed to Mr. Burgoyne's value of $51,000. This can be attributed to the fact that Mr. Speed used adepreciation factor of 20% whereas Mr. Burgoyne used a factor of 10%. Based on Mr. Speed's thoroughnessand experience, the judge decided to accept his figure over Mr. Burgoyne's. Sterling Rubber Ltd. v. Canadian Imperial Bank of Commerce (Ontario Court of Justice, GeneralDivision, 1991)

CIBC terminated Sterling's line of credit and called for payment of the loan and Sterling subsequently went outof business. Sterling claimed CIBC had terminated the line of credit and demanded payment of the loan withoutproper notice, and was therefore liable to pay damages for Sterling's loss. Although the action against CIBCwas dismissed, the judge went on to discuss how damages would have been assessed had CIBC been liable.

To assess damages, the company and its assets needed to be valued at the time of CIBC's refusal to continue theloans. The judge accepted the going concern valuation approach for the business, since the company would havebeen able to continue for an indefinite period of time, had the loan not been ended.

The equipment valuators hired by the plaintiff utilized a "value in use" approach, described by the valuators asthe value in place of the assets — considering their age, condition and obsolescence, the value by which theequipment contributes to the total company value (the return on the investment) where the company is to bevalued on an on-going concern basis.

Valuation of Machinery and Equipment Case Studies

2.3

Despite the judge's acceptance of the going concern approach to the evaluation of the business, he rejected thevalue in use approach to the equipment valuation in this case, since that approach assumed that the equipmentwould provide an adequate return on the investment. The assumption that the assets could generate sufficientcash flow and earnings to justify the value estimated by the valuators was not supported by the evidence.

The judge would have determined the value of the equipment by taking into account the asking price for theequipment, the sale price, the book value (all of which represented discounted amounts due to the financialconstraints placed on the company by the bank), and inflating the figures by a small amount to give a "realistic"value to the company.

Wark v. Kozicki (Sask. Court of Queen's Bench, 2000)

The Kozickis were directors of a privately owned foundation drilling company who were found to have exercisedtheir powers oppressively with respect to Wark, a major shareholder in the company. As part compensation toWark for his losses, the Kozickis agreed to purchase the shares held by Wark. The value of the shares had tobe decided by the court, and was determined in part using the assessed value of equipment owned by thebusiness.

To determine the value of equipment, such as cranes, drilling rigs, and vehicles, several firms were hired bythe parties, and the judge commented on the practices of the appraisers hired by the defendants. The firm hiredby the defendants (CVPL) was instructed by the defendants not to consult with the other party. The judgepreferred the report of the company of appraisers who had prepared an unbiased report, created in consultationwith both sides over the appraisers who were restrained by the defendants.

This case highlights the importance of research and data collection in the appraisal of machinery and equipment.

Johnston v. Johnston (1997, Manitoba Court of Queen's Bench, Family Division)

In a divorce proceeding, a family business had to be valued (fly-in fishing lodge, planes, boats and equipment)for purposes of division of estate. The divorce/valuation date was 10 years after initial separation and there waslittle documentation of the value/condition of the assets at the relevant time for valuation.

An appraiser was hired to value this personal property. The judge commented on the appraisal methods andtechniques as follows: "I have an overriding concern about the objectivity of Prairie Aircraft valuation. It isclear that Prairie Aircraft had and has an ongoing business relationship with Whiteshell Air Service and I amnot satisfied that the evidence provided by Mr. Macpherson is totally objective. In addition, Mr. Macphersonwas required to adjust almost all of his valuations substantially because he had either used improper engine timesor had failed to inquire about and value floats, and skis for a number of the aircraft. He also used as a resourcea publication issued by Lloyds of London which, in my estimation, is absolutely of no value to the valuationprocess at hand." (para. 21)

This highlights some of the factors that the courts (and clients) deem critical in a valuation of personal property,fixtures, machinery, and equipment.

Lesson No. 2

2.4

CASE STUDY #1: AAA Grain LTD.

Background Information

This case is based on an actual appraisal assignment. This appraisal was prepared for the partial sale of a grainsorting-cleaning facility, with a valuation date of November 30, 2006. The owner of the company was gettingon in age, so he decided to sell 50% of the company to a long-time employee. It was possible that refinancingwould be required.

The appraisal required the valuation of in excess of 30 pieces of equipment. The reasoning and calculations werenot included in the appraisal provided to the client, as these details are typically located in the working file. Thisis typical in an equipment valuation, unless the appraisal is of one piece of equipment only, say an oil platformor bulldozer. In this case study, however, all the calculations are shown so the reader can understand how thevalues were established. The final report can be viewed on the course website, although with all identifiers andthe effective date changed.

The basic function for the entire facility was to clean, grade, polish, and dry grain. To that extent, AAA GrainCompany used some of the best available equipment for an enterprise of this size. The inspection confirmedthat the equipment was operating at required capacity. In the busy season, during grain harvest, it was notuncommon to run the facility up to 12-14 hours per day.

All the original and historical operating and installation costs were made available. Discussions with the ownerand the prospective buyer suggested that all maintenance had been carried out as per manufacturers'recommendations. The company had maintenance personnel on-site.

Previous to the appraisal of the real estate and the M&E, a business valuation had already been conducted. Thisconcluded that the asset approach (real estate and M&E) resulted in a greater value than the income approachcarried out by the business valuator. It was also ascertained that management fees were reasonable for this typeof operation.

Appraisal Process

It is important to note that the owner has all the necessary information regarding the equipment to be appraised.You, as the appraiser, must obtain as much information on the equipment as possible. For example, you ideallywant to:

1. obtain a list of all the equipment to be appraised, including model or serial numbers;2. ascertain the date they were put in use;3. ascertain the cost of each piece of equipment;4. ascertain the cost of installation of each piece of equipment;5. ascertain whether they were used or new when installed;6. ascertain hours or mileage on each piece of equipment;7. ascertain the type of maintenance carried out, as needed or as per manufacturers' instructions;8. determine the book value of the equipment; and9. determine the insurance value of the equipment.

You may find all the above or only some. As an appraiser, you may have to interview the on-site maintenancepersonnel to obtain more information regarding updates, maintenance, teardowns, etc.

Some of the information requested was not provided. However, from the provided information, you are ableto value each item.


2.5

Function and Purpose of the Appraisal

It is imperative to establish the purpose and function of the appraisal. After reviewing all the backgroundinformation, you have ascertained that there will be two separate and distinct values to be arrived at. One, forthe partial transfer of the equipment, and two, the value for possible refinancing.

Purpose: Appraise the equipment at the effective date.Function: (a) Assist in the partial sale of AAA Grain Ltd.

(b) Assist in the possible refinancing of AAA Grain Ltd.

It was previously concluded that the value under the asset approach (real estate and M&E) was greater than theincome approach. Therefore, you know you are appraising the equipment as Fair Market Value-Installed andnot Fair Market Value in Continued Use, which takes into consideration the earnings.

You will be appraising for the partial sale as Fair Market Value-Installed, which is the estimated amountexpressed in terms of money that may reasonably be expected for an installed property in an exchange betweena willing buyer and a willing seller, with equity to both, neither under any compulsion to buy or sell, and bothfully aware of all relevant facts, including installation, as of a specific date. This amount includes all normaldirect and indirect costs and other assemblage costs to make the property fully operational, but does not haveto be supported by the business earnings.

For the possible refinancing, you will be appraising as Forced Liquidation Value (FLV), which is the estimatedgross amount expressed in terms of money that could be typically realized from a properly advertised andconducted public auction, with the seller being compelled to sell with a sense of immediacy on an as-is, where-isbasis, as of a specific date. Orderly Liquidation Value (OLV) may also be used.

Sources of Data

In all cases, the first contact for comparables is the manufacturer. Ascertain if the manufacturer still producesthe model you are appraising, what is the cost of a new unit, etc. The manufacturer will be able to provide thecost of a new unit installed including the update contracts and warranties.

Next, ascertain from the manufacturer if they take trade-ins, do they have any for sale, at what cost, and whatdo they include? If they do not have all this information, they may have information on dealers that deal in usedunits in the area you are working. The dealer may have publications that list sales of similar units. Generally,dealer sales are refurbished units in good condition, unless stated otherwise.

Cost Estimates

The following costs include all historic direct and indirect costs received from the owner.

Direct costs: All costs incurred in the purchase and placement of an asset into a functional use.

Freight Foundation and pitsRigging and moving Mill rightingElectrical Labour for erection

Direct costs in this case include freight or transportation, foundation and pits, labour for erection or installation,and, in the case of the Delta Sorter, the update contract.

Lesson No. 2

2.6

Indirect costs: All costs indirectly incurred in the purchase and placing of an asset into use (excluding allabnormal costs). These may include:

Temporary insurance PremiumsEngineering SecurityLicenses, permits, fees Financing expensesTraining of operators

The only indirect cost incurred in this case was a small premium to have the concrete pits and pads installed ontime. The following are the costed items for AAA Grain.

COST YEAR

1-55' LAMBTON ELEVATOR LEG $55,000 2001Universal P leg, complete with conveyor.

FORSBERG GRAVITY TABLE $30,500 1996

Model 12M excellent working condition. Complete with bean and grain screens and hopper.

FORSBERG DESTONER $8,560 1996

Matched to gravity table excellent working order. 2.52 deck size,with motor and filter unit.

DELTA SORTER $156,000 2003

Waterfall world sorter. 7 chute capacity. High resolution camera. It is adaptable with various sized seeds or grains. Operates with 2 electric eyes. This unit has an update contractwith original manufacturer. It was updated in 2005. Averagehours of use 1,600-1,800 hours per year, it had 5,630 hours at

2001 Dodge 4x4 Truck $29,700 2001

Appears to be in good condition. At the effective date the odometer was showing 66,000 km.


2.7

Appraising AAA Grain's Machinery and Equipment

55 foot Lambton Elevator Leg: These units are generally located outside, but there are some instances withinside installation. The cost of installation is nominal, as they are usually installed on a small concrete pad orin a concrete pit to receive the grain. There are many companies that are involved in fabricating these types ofunits. They all have the same utility and the costs are similar. The unit of comparison for these units is priceper foot. Generally, the price does not vary significantly between auction prices or dealer prices unless themotor or the conveyor is damaged. Some are equipped with conveyors or screws to gently lower or raise thegrain. The life expectancy of these units is 20 to 25 years. The major use is in summer and fall, at which timethey could be running two and in some instances three shifts per day.

The subject unit was in good condition at the effective date, located outside with a conveyor in a concrete pitto receive the grain. It was newly installed in 2001 at a cost of $55,000 including purchase price, transportation,and installation. A small monetary premium was paid to have the concrete pit and pad poured on-time.

At the effective date, the cost of a new 55 foot unit installed in a concrete pit with transportation was $65,000or $1,181 per foot.

The following are dealer sales and auction prices that were investigated in the marketplace. Dealer pricesinclude transportation and installation, while auctioned units do not. When using auction sale prices, it isimportant to ascertain if the sale is based on buyer's premium or if the auctioneer will take fees from the saleprice. Buyer's premium is generally over and above the bid value. In this case, the auctioneer took fees fromthe seller.

No. Date Length Price Condition Price Per Foot Age

Dealer sales

1 05/06 78 feet $43,000 F $551 8 years old

2 07/06 63 feet $40,000 G $635 5 years old

3 07/06 49 feet $30,000 G $612 6 years old

Auction sales

1 04/06 77 feet $33,300 F $432 9 years old

2 05/06 71 feet $40,000 F $563 5 years old

3 07/06 52 feet $26,000 F $500 7 years old

Conclusion – FMV-Installed: The subject unit is 5 years old and it was in good condition at the effective date.Sales two and three are the most comparable based on their age, therefore the most reasonable price per footfor the subject elevator under the definition of Fair Market Value-Installed is $625 per foot or 55 feet × $625= $34,375, rounded to $34,500.

Conclusion – FLV: The subject unit was 5 years old at the effective date, therefore, based on the auction sales,the Forced Liquidation Value (FLV) is $550 per foot or 55 feet × $550 = $30,250, rounded to $30,000.

1996 Forsberg Gravity Table: This is a Model 12M with various grain screens and a hopper. It has a returnleg and a 15HP motor. It was completely overhauled in 2003 and at the effective date was in excellentcondition. It was 10 years old at the date of valuation, but it was determined that the effective age due to theoverhaul was only 6 to 7 years.

Lesson No. 2

2.8

Five sales were located and investigated:

1. 1998 Model year, Forsberg 12M equipped with screens, hopper, and 15HP motor. A dealer sold it inAugust 2006. Prior to sale it was refurbished and sold for $17,200.

2. 2000 Model year, Forsberg 12MS equipped with an auxiliary hopper, various screens, and 15HP motor.This unit was in excellent working condition and sold by an equipment dealer for $18,900 in April2006. The above prices included transportation and installation.

3. 1997 Model year, Forsberg 12MS sold by user who purchased a much larger capacity model.Transportation and installation was the responsibility of the purchaser. Sold in April 2006 for $12,400.It was in good working order at the date of sale.

Auction sales (no buyers premium):

4. 1999 Model year, Forsberg M12, sold for $6,300 on an as-is, where-is basis. It had a 15HP motor inworking order, but all the screens were in poor condition.

5. 1996 Model year, Forsberg M12, sold for $4,800 on an as-is, where-is basis. It was equipped with a15HP motor and fair grain screens.

Conclusion – FMV-Installed: Sales one and two are the most comparable, requiring no adjustment for age as theeffective age of the subject unit is similar to the sales. Based on the above sales, the FMV-Installed for subjectequipment on the effective date was $18,000.

Conclusion – FLV: Auction sale one is the most representative of subject, based on age. Based on the auctionsales, the FLV of the subject equipment on the effective date was $6,000.

1996 Forsberg Destoner: The subject equipment has a 2.52 sq. ft. deck with filter unit and motor. At theeffective date it was in excellent condition, having been refurbished in 2003.

Two sales were located:

1. 1998 Model, Forsberg, similar to subject with 2.52 sq. ft. deck with filter and motor. Sold by dealerin June 2006 for $6,800.

2. 1995 Model, Forsberg, similar to subject with 2.52 sq. ft. deck area with filter and motor. Dealer soldin good condition in May 2006 for $6,500.

Conclusion – FMV-Installed: Based on the above sales, the FMV-Installed of the subject equipment at theeffective date was $6,500.

Conclusion – FLV: No auction or forced sales were located. The Forsberg Gravity Table indicates a 33%percent difference between the dealer sales and the auction sales. With the same percentage reasonably appliedto the FLV, the FLV of the Forsberg Destoner at the effective date was 33% of $6,500 = $2,145, rounded to$2,100.

Delta Waterfall Sorter: The subject equipment is a 2002 Model year sorter with an update contract with themanufacturer. It was updated in 2005 or one year prior to the effective date. The update is a 5-year contract(good until 2008) and includes new software, computerized electric eye, and high-resolution camera. Theaverage hours per year on these units is 1,600 to 1,800 hours. The subject has 5,630 hours, which is considered


2.9

average. The unit of comparison is the price paid per hour of remaining economic life (REL). These units havean economic life expectancy of between 43,000 and 45,000 hours, we will use an average of 44,000 hours.According to the manufacturer, the update cost is $22,000 and it is a 5-year contract. The transportation andinstallation costs are $12,000.

Six sales were located and investigated, three were dealer sales and three auction sales:

No Age Price Hours Hours REL Price/hour SalesPer Year of REL Paid Date

Dealer sales

1 4 $137,000 7,004 1,750 36,996 3.70 9/06

2 1 $166,000 1,821 1,821 42,179 3.94 7/06

3 2 $150,000 3,954 1,977 40,046 3.75 10/06

Auction sales (no buyer premium)

4 5 $90,000 10,076 2,015 33,924 2.65 4/06

5 7 $80,000 12,950 1,850 31,050 2.58 1/06

6 10 $78,000 15,200 1,520 28,800 2.71 5/06

New 0 $189,000 0 44,000 4.30 2006

Conclusion – FMV-Installed: The first three sales were in good condition and all included transportation, newupdate contracts, and installation. The update contracts were all manufacturer obtained and had a 5-year lifefrom the date of purchase from the dealer. The subject had a 5-year update contract, but three years hadexpired. An adjustment is required for the difference in the value of the update contract. The price per hour ofremaining economic life is 3.70 to 3.94. The price per hour of the REL is reasonable at 3.8 for subject, priorto the adjustment for the update contract.

3.8 × 38,370 (hours of REL of subject) = $145,805 rounded to $146,000Less: adjustment for the update contract, 3/5 of $22,000 $ 13,200The FMV-Installed for the subject was $132,800

Conclusion – FLV: Sales 4-6 are auction sales on an as-is, where-is basis. The prices paid do not includetransportation, update contract, nor installation. The range of price per hour of REL is from a low of 2.58 toa high of 2.71. The price per hour of REL is reasonable at 2.6 at the effective date.

2.6 × 38,370 = $99,762 rounded to $100,000

2001 Dodge 4x4 Truck: Appears to be in good condition. At the effective date, the odometer was showing66,000 kilometres, which is considered below average. This truck does not require any installation andtransportation is only nominal. The Black Book suggested retail value for a low mileage 2001, 4x4 Dodge truckis $14,000. This was confirmed by local Dodge dealers. Therefore, the FMV-Installed for this truck at theeffective date was $14,000.

The local auctioneer was auctioning similar units that came off leases, with higher kilometres at between $9,000to $9,700 per unit without buyer's premium. An adjustment is required for the low kilometres versus theauctioned units with higher kilometres, say $1,000. Therefore, the FLV of this truck at the effective date was$11,000.

Lesson No. 2

2.10

Summary of AAA Grain's M&E Value

The summary of values at the effective date are as follows:

Description FMV-Installed FLV55 Lambton Elevator Leg $34,500 $30,000Forsberg Gravity Table $18,000 $6,000Forsberg Destoner $6,500 $2,100Delta Sorter $132,800 $100,0002001 Dodge Truck $14,000 $11,000

Variations on Value

The following section illustrates how the appraisal of the Delta Sorter can be revised based on different uses ofthe report. This demonstrate the various values that you can apply with the existing information.

Income Tax Act – FMV

Assume that you, as the appraiser, are asked to value the Delta Sorter for Canada Revenue Agency (CRA) forthe same effective date due to a non-arm's length transfer. The Income Tax Act is specific in the definition ofhow it must be appraised. The definition is Fair Market Value, which can be defined as: the estimated amount,expressed in terms of money, that may be reasonably expected in an exchange between a willing buyer andwilling seller, with equity to both, neither under any compulsion to buy or sell and both fully aware of allrelevant facts, as of a specific date.

However, CRA has their own FMV definition: highest price available in an open unrestricted market betweeninformed prudent parties, acting at arm's length under no compulsion to act, expressed in terms of money ormoney's worth. They are phrased differently, but their meaning is the same.

Direct and indirect costs are not included in the valuation of this equipment for CRA, unless specificallyrequested.

The table provided earlier gave all the information necessary to complete this appraisal. The cost of the updatecontract is $22,000 and the cost of transportation and installation is $12,000. The total direct costs are $34,000.

Subtract the $34,000 from the purchase price, with the following results:

No Age Price Hours Hours REL Price/hour SalesPer Year of REL Paid Date

Dealer sales

1 4 $103,000 7,004 1,750 36,996 2.78 9/06

2 1 $132,000 1,821 1,821 42,179 3.13 7/06

3 2 $116,000 3,954 1,977 40,046 2.90 10/06

New 0 $189,000 0 44,000 4.30 2006


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Conclusion – FMV: Price paid per hour of REL is reasonable at 3.00.

3.00 × 38,370 = $115,110 rounded to $115,000.

We now have three separate values for the same piece of equipment on the same date. As you can see, thedifference is quite substantial.

FMV-Installed $132,800FMV $115,000FLV $100,000

Insurance Value

Let's assume now that you need to establish the Insurance Replacement Cost (IRC) of this unit together withInsurance Value Depreciated (IVD), for settlement of an insurance policy. The definition for IRC is thereplacement cost new as defined in the insurance policy less the replacement cost new of the items specificallyexcluded in the policy, as of a specific date. All direct and indirect costs are excluded.

The definition for Insurance Value Depreciated (IVD) is insurance replacement cost new less the accrueddepreciation considered for insurance purposes as defined in the insurance policy or other agreements, as of aspecific date. This definition does not include any direct or indirect costs unless specified in the insurance policy.

It is important to read the policy to understand the specific value required.

Insurance Replacement Cost: We know a new unit, including the update contract, transportation, and theinstallation charges is $189,000. Again, if we deduct the update contract, transportation, and the installationcosts, the RCN is $189,000 less $34,000 = $155,000.

Insurance Value Depreciated: The subject equipment has 5,630 hours. The economic life expectancy for thistype of unit is between 43,000 to 45,000 hours, say 44,000 hours. At this point, it becomes a mathematicalcalculation:

5,630 / 44,000 = 12.79%12.79% of $155,000 = $19,824, rounded to $20,000$155,000 less $20,000 = $135,000

Final Conclusion: Delta Sorter

We now have five separate and different values on the same date for the same piece of equipment:

Replacement Cost New (RCN) $189,000Insurance Replacement Cost (IRC) $155,000Insurance Value Depreciated (IVD) $135,000Fair Market Value-Installed (FMV-Installed) $132,800Fair Market Value (FMV) $115,000Forced Liquidation Value (FLV) $100,000

This demonstrates how M&E appraisal can differ depending on the function and purpose of the appraisal. Thisalso highlights some of the variability in appraising machines and equipment versus real estate.

Lesson No. 2

2.12

AAA Grain Concluding Remarks

In real estate appraisals, the appraiser usually values only one asset, such as a house or farm, with all thecomparables, adjustments, and calculations shown in the body of the appraisal. In an equipment appraisal, thecomparables or calculations are only seldom shown for each individual piece of equipment, with all thecomparables, research papers, and calculations remaining in the appraiser's working file. If the appraisalassignment is an oil platform or just one piece of equipment, then it may be appropriate for the appraiser to showall the necessary comparables and calculations in the body of the appraisal.

You must have a good understanding of the equipment market. You should consider specializing in a certainarea and it is critical to have a good database. Attend auctions, and collect and keep publications in your library.In many instances, the appraiser will inspect a facility to be appraised and immediately know the value of someof the equipment on-site. That comes from the appraiser's expertise acquired over the years as well as theinformation in his or her library.

It is imperative to understand that you, as an appraiser, cannot realistically put in 5-6 hours on each piece ofequipment. There will be certain pieces of equipment where the appraiser will spend more than 5 hours, butthis cannot be realistically done for all the pieces. If your assignment is to appraise a 2001 4x4 Dodge truck,you can simply call dealers or just check truck sales publications (Blue Book or Black Book), which will provideadequate information to arrive at a reasonable value. So, instead of spending 5-6 hours you may only spend 15minutes. If you have a small facility with 50 pieces of equipment, which is not uncommon, at 5 hours each,your fee could be 250 hours at $75/hour = $18,750. Appraising is a competitive environment, in most casesthe owner will obtain at least two quotes for the cost of the appraisal and if your quote is out-of-line you willnot get the appraisal assignment.


2.13

CASE STUDY #2: Piccadilly Circus Restaurant

The restaurant which contains equipment, fixtures and improvements which are the subject of this appraisal islocated at 196 Piccadilly Circus S.W., Calgary, Alberta in a high rise office tower with commercial space onthe ground floor. The restaurant is licensed for 99 seats.

The appraiser has inspected the subject equipment, fixtures and leasehold improvements on October 20 and 23,2002.

This report is prepared for financing purposes and in accordance with the Uniform Standards of ProfessionalAppraisal Practice (USPAP), Certification and Statement of Limiting Conditions, and the Appraiser'sCertification attached hereto.

In preparing this report the appraiser will provide the market value on a going concern basis of the subjectequipment, fixtures and leasehold improvements as set out further in this report.

Market Value

"Market Value" is the most probable price which a property should bring in a competitive and open marketunder all conditions requisite to a fair sale, the buyer and seller, each acting prudently, knowledgeably andassuming the price is not affected by undue stimulus. Implicit in this definition are the consummation of a saleas of a specified date and the passing of title from seller to buyer under conditions whereby:

1. buyer and seller are typically motivated;

2. both parties are well informed or well advised, with each acting in what they considered their own bestinterest;

3. a reasonable time is allowed for exposure in the open market;

4. payment is made in terms of cash in Canadian dollars or in terms of financial arrangements comparablethereto; and

5. the price represents the normal consideration for the property sold unaffected by special or creativefinancing or sales concessions granted by anyone associated with the sale.

Going Concern Value

"Going Concern Value" is the value created by a proven property operation. It is considered a separate entity,to be valued with an established business. This value is distinct from the value of the real estate only. GoingConcern Value includes an intangible enhancement of the value of an operating business enterprise, which isassociated with the process of assembling the land, building, labour, equipment, and marketing operation. Thisprocess leads to an economically viable business that is expected to continue.

"Going Concern Value" is also defined as that value which is inherent in a business where the business isestablished as distinguished from one which is yet to be established. In the instant appraisal the Going ConcernValue includes those chattels which are a necessary part of the business and essential to keeping it going, vis:furniture, fixtures, and other equipment necessary for the proper operation of the Business and which, by theirabsence, would cause injury to or the shutting down of the business.

Lesson No. 2

2.14

Market Value on a Going Concern Basis

The purpose of this appraisal is to estimate the contribution of the personal property, specifically the machineryand equipment identified herein, to a viable going concern. While business enterprises are sold in themarketplace on a Going Concern Basis, the value of the furniture, fixtures, and equipment in the SubjectBusiness is determined from the marketplace according to their contribution to the value of the going concern;this requires the use of the income approach. However, because it is usually not possible to determine the netincome associated with individual components of real property, the appraiser values machinery and equipmentusing the direct comparison or cost approach, as permitted by the availability of market data.

Market Value on a Going Concern Basis will therefore include the market value of the furniture, fixtures, andequipment necessary for the proper operation of the business.

This appraisal only deals with the estimated market value on a going concern basis of the leaseholdimprovements, furniture, fixtures and equipment required for the proper operation of the subject business at thislocation.

In order to determine the profitability of the subject business located on the subject property, inquiries weremade with Mr. James Green, President of Piccadilly Grill and the present operator of the subject business. Heprovided financial information that confirmed that there is sufficient income from the restaurant business locatedat the subject property to service the estimated value of the subject fixtures, equipment and leaseholdimprovements. At the time of inspection it appeared that the business was operating well at this location. Thelocation of the subject business in the heart of the Piccadilly Circus area directly to the south of the Downtownarea of the City of Calgary is of importance.

On the pages that follow is a list of the various fixtures, equipment, and leasehold improvements that arepresently located at the subject property. Some of these fixtures, equipment, and leasehold improvements areattached to the building. However, it is generally accepted that such fixtures and equipment are part of thechattels of the business and can normally be removed at the termination of the lease agreement. Leaseholdimprovements generally remain with the building.

NOTE: It is of great help if the operator of the business prepares the list of Equipment and Fixtures. Thislist should be checked at the time of inspection.

Restaurant and Bar on Piccadilly Circus — Equipment and Fixtures List

Estimated Estimated MarketReplacement Value on a

Cost Going Concern Basis6 Bar Tables $1,150 $90023 Bar Stools 3,450 2,00020 Tables 3,000 2,00054 Chairs 6,750 4,0009 Patio Tables 1,350 72030 Patio Chairs 600 3002 27-Inch Televisions 1,800 1,2001 50-Inch Big Screen Television 3,500 1,8007 Speakers 1,050 5601 4-Door Under-Counter Cooler 6,000 4,0001 Perlick Keg Cooler 3,500 2,5001 Rancilio Cappuccino Machine

and 1 Cappuccino Grinder 5,000 3,000


2.15

1 6-ft. Bar Bench 1,200 7501 RCA Satellite System 1,500 1,2501 Sony Stereo System

and Yamaha CD Changer 1,600 1,0001 Air Conditioning Unit 6,000 4,0001 84-US Gallon Hot Water Tank 1,500 7501 24-Inch Quest Grill 3,600 2,4002 Wolf Ranges — 6 Burner 5,800 3,0001 Double Moffat Salamander 1,800 1,2002 MKE Fryers 2,600 1,8001 MKE Pizza Oven (3 Shelves) 6,000 3,5001 Hollman Toaster (220 Volt) 900 4501 Automatic Berkel Meat Slicer 2,000 1,5001 Showcase Refrigerator 4,000 2,2001 4-ft. Sandwich Table (DMP) 3,500 2,0001 4.5-ft. Sandwich Table (True) 3,500 2,0001 5-ft. Sandwich Table (True) 4,350 2,5001 6-ft. Steam Table (Quest) 3,000 1,5002 Soup Warmers (3 Holder) Wyatt 450 2502 Heat Lamps — 3 ft. (Hatco) 800 4001 Stand-up Fridge (3 × 6 ft.) (Coke Cooler) 1,600 9001 12-ft. Hood Exhaust 8,000 5,000Fire Suppression System 3,000 2,0001 Make-Up Air Unit 8,000 5,0001 Scottsman Ice Machine 3,500 2,0001 15 × 6 ft. Walk-in Cooler 8,000 6,0001 8 × 6 ft. Walk-in Freezer 6,000 4,0001 Double-Door Upright Coke Cooler 3,200 2,0001 Stainless Steel Pot Sink — 5 ft. 1,250 1,0002 Panasonic Cash Registers

and 3 Panasonic Remote Printers 9,000 6,5001 Stainless Steel 8-ft. Dishwasher Sink 2,000 1,5001 Stainless Steel Shelf Over Sink 500 25014 Stainless Steel Shelving Racks

(9-5 ft. and 5-3 ft.) 4,200 2,500Assorted smallwares including all utensils,

knives, forks, spoons, dishes, menus, etc. 5,000 3,500

TOTAL $154,500 $97,580SAY $97,500

NINETY SEVEN THOUSAND FIVE HUNDRED DOLLARS($97,500)

Lesson No. 2

2.16

Leasehold Improvements

The leasehold improvements included within the subject property are those items which are required to convertthe leased area to premises which are suitable for the operation of a restaurant and bar. Some of the itemsincluded in these leasehold improvements include the following:

C Plumbing;C Electrical;C Heating;C Air make-up system;C Hardwood floors;C Infrastructure for the raised area of the restaurant;C Bar and accessories;C All millwork;C Built in bench seating;C Interlocking brick work and railing on patio;C Dish washing area;C Build-out of area at the back of the restaurant to include mens, ladies and handicapped washroom;C Walls, doors and flooring for the following partitioned areas in the restaurant; C Two storage areas;C Office.

In order that the reader can obtain the general idea as to the lay out of the property we are including with thisappraisal as Appendix "A", a copy of the floor plan of the restaurant with an indication on this as to some ofthe features of the subject restaurant (not included with this case study).

In our opinion the estimated cost of completing the leasehold improvements for the subject property is estimatedto be $27.50 to $28.50 per sq. ft.

The subject property contains an area of approximately 3,750 sq. ft. Based on a replacement cost of between$25.00 and $30.00 per sq. ft., the replacement cost of the leasehold improvements lies in a range of $103,125to $106,875. As will be noted later in this appraisal, the remaining term of the current lease including tworenewal options are a total of 14 years.


2.17

Applying a depreciation rate of 20% to the higher end of the range the estimated market value of the leaseholdimprovements on a going concern basis is estimated to be $82,500 to $85,500, say $84,000.

On the inspection of the subject fixtures, equipment, and leasehold improvements, the appraiser noted that asmall amount of the fixtures and equipment had been replaced more recently, whereas most of the leaseholdimprovements and some of the equipment and fixtures had been in use for some time. It is noted that somerestaurant equipment will operate well over a long period of time, whereas other fixtures and equipment haveto be replaced on a more regular basis. Generally speaking, leasehold improvements can be maintained in goodcondition by carefully looking after these improvements on a regular basis. The estimated market value on agoing concern basis takes these matters into account.

The present owner of the business has indicated that there is 4 years remaining on the current lease term and thatthe lease contains 2 options to renew each with a term of five years for a total of 14 years.

The owner of the business has advised the appraiser that there is sufficient income presently generated by thebusiness to provide a return on and a return of the investment on the fixtures, equipment, and leaseholdimprovements shown herein.

Based on the foregoing information, and with proper consideration given to all factors affecting the market valueof the various equipment, fixtures, and leasehold improvements, the estimated market value on a going concernbasis of these fixtures, equipment, and leasehold improvements as of the date of appraisal, October 23, 2002is estimated to be as follows:

FIXTURES AND EQUIPMENTNINETY SEVEN THOUSAND FIVE HUNDRED DOLLARS

($97,500)

LEASEHOLD IMPROVEMENTSEIGHTY FOUR THOUSAND DOLLARS

($84,000)

If there is any other information which you require with respect to this evaluation, please contact the author.

The definition of the estimate of market value as used in this appraisal and Clause 6 of the appraiser'scertification requires the appraiser to provide an estimate of a reasonable time for exposure. Exposure time isalways presumed to precede the effective date of the appraisal and contrasts with the term "marketing time"which is a prospective or future concept. The reasonable exposure time in our opinion would be a period of 3months to 6 months with the subject equipment and fixtures sold with the subject business. The estimatedmarketing time for the subject property in today's market is similar to the reasonable time for exposure shownabove of 3 months to 6 months with the property exposed to the local markets.

Lesson No. 2

2.18

CASE STUDY #3: J.B. Steel Ltd.

Executive Summary — Salient Facts

Effective Date of Appraisal: December 31, 2005

Purpose of the Appraisal: To estimate in fee simple, the market value of the subjectmachinery and equipment.

Municipal Address: 38250 - 32nd Street S.E, Calgary

Legal Description: Lot 18, Block 5, Plan 8256824

Type of Appraisal: Machinery and Equipment used in a Steel Fabrication Business.

Leasehold Estate: For the purpose of this appraisal the leasehold estate has beendetermined at 30 years.

Size of Building Located on Property: 5,587 sq.ft. (519 m )2

Size of Land: 20,320 sq.ft. (0.47 Acres)

Age of Machinery and Equipment: Approximately 5 years

Land Use Classification: DC (Direct Control)

Highest and Best Use of Building: For a Steel Fabrication Plant.

Estimated Market Value: Machinery and Equipment ($42,000)

Note: standard contingent and limiting conditions have been omitted.

Critical Assumptions

A. This appraisal estimates the value of the machinery and equipment located within the subject property.This appraisal assumes that all of the machinery and equipment are free and clear of any encumbrances.

B. This appraisal assumes that the land, buildings, and other site improvements are held under a leaseagreement with a 10 year term and two options to renew each for a further 10 year term for a total of30 years.

Purpose and Function of the Appraisal

The purpose of this appraisal is to estimate the market value on a going concern basis of the machinery andequipment included in the subject property. The effective date of this appraisal is December 31, 2005.

The property and equipment is valued as being free and clear of all encumbrances and/or liens or any otherindebtedness or delinquency, notwithstanding the existence of any or all of these. Further, the appraisal is madeon the belief that the machinery and equipment are held under normal, responsible ownership as at the effectivedate of this appraisal.


2.19

The values determined in this appraisal report are based on the assumption that all permits, licenses, orother requirements are transferable to a new purchaser at the time that the business passes to a new ownerand that there are no environmental concerns with respect to the subject property.

The subject equipment and other chattels were inspected on January 7, 2006.

The function of this appraisal is to assist the owners of the machinery and equipment in the determination of themarket value of the subject fixtures and equipment if necessary to assist a potential lender in the financing of thefixtures and equipment.

Scope of the Appraisal

This appraisal is based upon information gathered by the appraiser from public records, Land Titles records,the Calgary Real Estate Board records, Alberta Data Search records, personal inspection of the subject propertyand surrounding area, a selection of comparable transactions from within the subject's market area, anddiscussions with real estate brokers and others active in the industrial and commercial real estate market in theCity of Calgary.

In addition, we have confirmed the current land use classification and planning status, we have examined thehighest and best use of the property, and examined market conditions and analyzed their potential effect.

Data believed to be unreliable has not been included in this report or used as a basis for the value conclusion.

Sales History of the Subject Property

The tenant's agent advises that the subject machinery and equipment have not been offered for sale during thepast 3 years.

Marketing Time

The definition of the estimate of market value as used in this appraisal and Clause 6 of the appraiser'scertification requires the appraiser to provide an estimate of a reasonable time for exposure. Exposure time isalways presumed to precede the effective date of the appraisal and contrasts with the term marketing time thatis a prospective or future concept. The reasonable exposure time in our opinion would be a period of 2 monthsto 9 months with the machinery and equipment exposed to the local and wider markets. The estimated marketingtime for the subject in today's market is similar to the reasonable time for exposure shown above of 2 monthsto 9 months with the machinery and equipment exposed to the local and wider markets. It should be clearlyunderstood that this estimate does not in any way suggest the length of time the final value estimate will remainas stated.

Legal Description

The subject fixtures, equipment, and chattels are located in the City of Calgary in the Province of Alberta ona parcel of land legally described as follows: Plan 825 6824, Block 5, Lot 18 (excepting thereout all mines andminerals). The lands in the subject property contain 20,320 sq.ft. (0.47 acres) more or less.

The Certificate of Title for the subject property is registered in the name of: J.B. Steel Ltd. Inc. of 38250 - 32ndStreet S.E., Calgary, Alberta. If required, a copy of the Certificate of Title to the subject property will beavailable.

Lesson No. 2

2.20

The following encumbrances are registered against the subject title:

C Zoning regulations subject to Calgary International Airport zoning regulations registered in 1980.C Utility right of way registered in 1984 by the City of Calgary.C Mortgage registered in 2001

It is the opinion of the appraiser that none of the above registrations registered against the subject property willaffect the value.

Definitions of Value

Note: market value and going concern value definitions have been omitted.

Goodwill

"Goodwill" for most purposes, can be defined as those elements of a business or a person which cause customersto return to that business or person and which usually enable a firm to generate profit in excess of that whichis required for a reasonable return on all of the other assets of the business, including a return on all otherintangible assets which can be identified and separately valued. Goodwill always runs with the business orindividual and cannot be sold separately. Part or all of business goodwill can sometimes be sold separately fromowners and employees of the business, but it cannot be sold separately from the business. Similarly, personalgoodwill can be sold in part or in full separate from a business but not separate from the individual.

Market Value on a Going Concern Basis

The purpose of this appraisal is to estimate the contribution of the personal property, specifically the machineryand equipment identified herein, to a viable going concern. While business enterprises are sold in themarketplace on a Going Concern Basis, the value of the furniture, fixtures, and equipment in the SubjectBusiness is determined from the marketplace according to their contribution to the value of the going concern;this requires the use of the income approach. However, because it is usually not possible to determine the netincome associated with individual components of real property, the appraiser values machinery and equipmentusing the direct comparison or cost approach, as permitted by the availability of market data.

Market Value on a Going Concern Basis will therefore include the market value of the furniture, fixtures, andequipment necessary for the proper operation of the business.

This appraisal only deals with the estimated market value on a going concern basis of the leaseholdimprovements, furniture, fixtures and equipment required for the proper operation of the subject business at thislocation.

City and Neighbourhood Data

Note: General information on region and city omitted.

Industrial Market

Calgary continues to be the distribution centre for Western Canada and is one of the strongest industrial marketsin the country. 2005 is projected to provide a stable supply of development land and a good supply of qualityindustrial product for lease throughout the City. There are several other users in town looking at design/buildfacilities totalling nearly two million sq. ft. with the single typical requirement being over 100,000 sq. ft.


2.21

Calgary's geographic access to major markets in Canada, the USA, and South America, coupled with the strongnatural resource sector are the key contributors to this unprecedented level of growth.

The Neighbourhood

The subject property is located in the Ogden area in the south east industrial area of the City of Calgary. Thesubject property is very well located relative to traffic in that the roads in the area include Peigan, Barlow, andDeerfoot trails and Ogden Road.

Statistics

Colliers International in their 2004/2005 Real Estate Review reported that there was an Industrial Inventory of82,510,049 sq.ft. in the City of Calgary with an average triple net rent of $5.50 per sq.ft. of space with extraamounts allowed for any additional fixtures and equipment located in the premises and required for operations.

Property Taxes

The property taxes paid with respect to the subject property in the year ended 2005 were $7,006.

Business Taxes

The subject property is located in the Ogden Industrial district in the southeast area of the City of Calgary.Business taxes and licenses are payable with respect to the subject property. The amount of business taxes paidin the last fiscal year is $3,424.

Zoning

The lands in the subject property are currently zoned Direct Control (DC) District under the Land Use By-lawof the City of Calgary.

PURPOSE: The purpose of this district is to provide for developments that, due to their uniquecharacteristics, innovative ideas or because of unusual site constraints, require specific regulationsunavailable in other land use districts. This district is not intended to be used in substitution of anyother land use district in the By-law that could be used to achieve the same result.

The subject property is considered to be a conforming use under the current by-law.

Description of the Subject Site

The subject is located at 38250 - 32nd Street S.E. in the Ogden area of the City of Calgary. The property islocated approximately 5 blocks east of Peigan Trail and in close proximity to 50th Avenue S.E. The subject sitehas easy access to Peigan Trail, Barlow Trail, and Deerfoot Trail. The location of the subject is shown on mapsof the area that are included herewith as Appendix "B" (not included with this case study).

The subject parcel is a regular shaped parcel of land that contains approximately 1,887 sq. metres or 20,320sq.ft. (0.47 acres) more or less. The property has good frontage on 32nd Street S.E. with sufficient width anddepth to suit the subject. The area is in the heart of the industrial area of the City of Calgary with good accessto all parts of the city. The site is at street and avenue grade and is serviced with all standard city services.

Lesson No. 2

2.22

Description of the Improvements

The subject site is improved with a one-storey warehouse building containing approximately 5,587 sq.ft. Thebuilding is used as a steel fabrication business and for storage of equipment and other materials used in thebusiness together with a small office at the front of the building. It should be noted that some of the machineryand equipment is included in the rent payable by the subject business and is not included in this appraisal.

On the pages which follow there is a list of some of the equipment and other items required to operate thebusiness on the subject property owned by the tenant. These are included in a line of machinery and equipmentand other non-owned ancillary items included in the rent payable and which are necessary for the operation ofthe steel fabrication business now carried on at the subject property.

Highest and Best Use

The building in which the subject machinery and equipment is located is in an area that is in high demand forindustrial uses with good access to major thoroughfares. If not needed by the current owner, the machinery andequipment would be of interest to persons establishing a business similar to the one that the equipment is usedfor now.

Accordingly, the Highest and Best Use of the subject machinery, equipment and fixtures, is for their continueduse in the business presently carried on by the present owner of the equipment. This machinery and equipmentcan be moved to another site should this be required.

These uses should maximize the returns of and on the investment needed for the equipment and thus fulfil theconcept of Highest and Best Use.

The Valuation Process

The valuation process is an orderly program in which data is collected, classified, analyzed, and presented asa final estimate of market value. There are three general approaches by which an estimate of market value canbe obtained. They are:

Cost Approach to Value

This approach is based on the depreciated value of the chattels and equipment which are used by the subjectbusiness to operate the subject business where the land, building, and fixed improvements are held under lease.This approach is most reliable when improvements are newer and the subjective estimate of depreciation islower.

Income Approach to Value

This approach is most appropriate and logical for revenue producing properties or for operating businesses andis based on the theory that value is equal to the present value of the income stream that the property is capableof producing when developed to its highest and best use. The annualized net income is converted into anestimate of present value through the process of capitalization. Various techniques can be employed in thedevelopment of the "capitalization rate", but essentially, all are based on the return achievable by the next bestalternative investment.


2.23

Direct Comparison Approach to Value

This approach is based on the principle of substitution, which maintains that a knowledgeable purchaser will notpay more for a property or asset than the cost of acquiring an equally desirable substitute without undue delayor expense. It is a process of correlating and analyzing comparable properties or asset to arrive at an estimateof value for the subject property, thereby reflecting the action and behaviour of buyers and sellers.

Generally, the most realistic valuation of machinery and equipment is provided by the cost approach. The directcomparison approach also offers a strong indication of value provided that a good selection of comparableinformation is available for analysis. Consistent with the purpose and function of this report and in view of thetype of machinery and equipment involved we will use the cost approach to determine the value of the machineryand equipment.

The Cost Approach

Estimated Market Value Machinery and Equipment

In order to evaluate the machinery, equipment, and fixtures located on the subject property, I have visited thebuilding in which the fixtures and equipment are located.

The machinery, equipment, and fixtures are generally in good condition and are generally newer. There isevidence that this machinery and equipment should continue to be suitable for a business conducted on thesubject lands or alternate lands for a considerable period of time.

The current market value is developed by determining the current replacement value of each piece of machineryand equipment. After determining this value we then estimate the reasonably expected remaining life of eachpiece of machinery and equipment and value the item accordingly.

Based on our review of the business and the financial statements provided, and having regard to the present valueof the machinery, equipment and fixtures required for the operation of the subject business, we have arrived atan estimated value for the machinery equipment and fixtures located within the subject on an en bloc goingconcern basis. A list of the equipment and fixtures is included herein. In our opinion this machinery, equipmentand fixtures has a market value of $42,000.

Conclusion and Final Estimate of Value

Estimated Value of the Machinery and Equipment $42,000

As will be seen from the information provided, the machinery and equipment located on the subject propertyis in very good condition and is suitable for the business carried on at the subject property.

Based on the foregoing and with proper consideration given to all factors affecting the estimated market valueof the machinery and equipment is estimated to be $42,000

FORTY TWO THOUSAND DOLLARS($42,000)

Clause #6 of the appraiser's certification requires the appraiser to provide an estimate of a reasonable time forexposure in the open market as a condition in the definition of market value. In our opinion the reasonable timefor exposure in the open market is estimated to be a period of 3 months to 6 months, with the machinery and

Lesson No. 2

2.24

equipment exposed to a wide market. The estimated "marketing time" for the subject property in today's marketis a period of 3 months to 12 months or longer and would depend upon current conditions in the market placeat the time the property was offered for sale.

Note: Appraiser's Certification omitted.

J.B. Steel Ltd. Equipment List

Estimated Age Replacement Cost ValueCurrent Current Market

Makita 12" Portable Chop Saw 5 Years $600 $50015 Amp, 120v motorSerial #008710K MAK LC1230

Force 8" Bench Grinder 3 Years 100 803/4 HP, 120v motor FRV MD200K

Bosch Drill 14.4V BOX 32614 8 Years 280 220

Force Portable Air Compressor 5 Years 300 2402HP, 9.3 amp motorSerial #23110 FRV 30650

Welder #1 Miller Shopmaster 8 Years 3,500 2,500300AC/DC Stock #903126Serial #KE616910 Volts 200/230/460; Blue

Welder #2 Millermatic 8 Years 2,885 1,700250 CV/DC Serial #KF938126Stock #903291; Blue

Welder #3 Acklands DC ARC 7 Years 4,100 2,200Model #DR-400 DC-4 Stock #4611-121 Serial #HF887237Orange

Welder #4 Linde VI-400-575 5 Years 3,957 1,325Serial #D78D12948P/N #675-601; Green

Forklift Hyster 5 Years 30,000 22,500Model #H50H Design Spec# ANSIB561969Serial #D3T23134

#1 Makita 7"/9" Sander Grinder 5 Years 220 14515 amp, 120v, 6000 rpm.MAK GA7910 Serial #64027

#2 Makita 7"/9" Sander Grinder New 220 22015 amp, 120v, 6000 rpm.MAK GA7910 Serial #103545

#3 Makita 7"/9" Sander Grinder 5 Years 220 15015 amp, 120v, 6000 rpm.MAK GA7910 Serial #66964


J.B. Steel Ltd. Equipment List

Estimated Age Replacement Cost ValueCurrent Current Market

2.25

#4 Makita 7"/9" Sander Grinder 5 Years 220 15015 amp, 120v, 6000 rpm.MAK GA7910 Serial #not legible

#5 Makita 5" Angle Grinder 4 Years 150 14010 amp, AC/DC 115v MAK 9005B

Solar Battery Charger 12v 7AMP 4 Years 460 375

Milwauke Magnetic Drill Press 3 Years 2,500 2,00011.5 Amp, 120v, AC onlySerial #598b197503525 MTW 4208-I

Hydraulic Press 100 Tonne 3 Years 8,500 7,000H Frame Serial #09124-013/5

SUBTOTAL $58,212 $41,745

ROUNDED TO $42,000

Conclusion

This course has provided an overview of the basics of machinery and equipment appraisal. Lesson 1 introducedhow the M&E appraisal process works and pointed out some of the intricacies and complexities of M&Evaluations. Lesson 2 built on this foundation, illustrating the practice of M&E appraisal through additionalexamples and case studies.

The goal of this course has been to build awareness of this topic for readers, providing a first step into a new,but related area of valuation. Some appraisers may come across M&E valuation as a part of their real estateassignments -- they need to be able to work with specialists in this area and, possibly, review and critique theirwork. Other appraisers may find M&E interesting as a potential area of specialization -- these readers will needto do further research on their own into what is required in this area of practice. There are numerous additionalcourses and programs available and readers are encouraged to investigate these further learning opportunitieson their own.

Documents

LESSON NO. 2 Valuation of Machinery and Equipment — Case Studies ... · Valuation of Machinery and Equipment Case Studies 2.3 Despite the judge's acceptance of the going concern