Approaches Used In Evaluating a Commercial Plant
Here are many reasons people look for power plant valuation appraisal. Some might need them for buyer/seller negotiations or just want to remove some of the utilities.
Here are many reasons people look for power plant valuation appraisal. Some might need them for buyer/seller negotiations or just want to remove some of the utilities. A power plant valuation appraisal consists of generation and transmission equipment, land, buildings, and intangible assets. Determining the value of a complex property is determine using many approaches. The power plant valuation is primarily calculated by considering the three approaches to value, which include:
Each approach is analyzed to determine its applicability to the specific property being appraised, based on factors like:
Power plants valued using these approaches include:
Let us discuss each in brief.
Sales Comparison Approach
The sales comparison approach calculates the value through an analysis of recent sales that have occurred in the market. While doing a power plant valuation the purchase price of the tangible assets is determined to arrive at the purchase price of only the tangible assets, deductions must be applied to each comparable sale or the sales comparison approach indicator of value.
The income approach measures value as the current worth of future monetary benefits expected to be derived from ownership of the assets. These monetary benefits are based on the income stream expected to be available to the owner of the assets. To derive a market value, intangible assets such as contracts and emission credits are excluded from the analysis and a market-based forecast is derived.
The cost approach is used to estimate value based on the current cost of the subject asset, excluding the following:
In the cost approach, the capacity and utilization, physical condition, and operating characteristics of the actual plant being appraised in comparison with a modern replacement plant is analyzed. This approach needs a thorough study of the economics of the industry in which the plant competes as well as technological advances in that industry.
Author’s bio: the author is a blogger and the article is about power plant appraisals.
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ABOUT THE AUTHOR
MR Valuation Consulting is an independent valuation and consulting firm providing reliable business valuation, advisory, and consulting services including business valuations, purchase price allocations, cost segregation studies, appraisals of machinery & equipment.