General philosophies of management regarding such matters may be as follows: • There must be a thorough understanding of the applications and service level for which the appraisal will be utilized. Generally these service purposes may include: o bankruptcy or loan workout matters, o condemnation or eminent domain matters, o equity disputes, o financing, o fixed asset accounting for financial reporting, o fixed asset accounting for tax reporting, o incorporation into a financial or intangible asset valuation, and/or o insurance valuations or losses. • Photographs should be taken of the major assets. • As appropriate, discussions relating to the assets should be held with the head engineering and/or maintenance personnel, as well as purchasing, and fixed asset accounting staff. • The appraiser who inspects the facility should directly contact the information sources (usually vendors or dealers) from whom value indicators for major assets are ascertained. • Value derivation factors (trending / depreciation factors applied to original cost information) will generally not be utilized. Exceptions to this guideline are permitted only if the assets being valued are not material, or if the factors are derived from directly related value information sources (vendors, dealers or reliable government resources). Critically, the basic value data must be useful. • When in the “field” the appraiser should indicate in his notes an estimate of the value when possible as a precaution should other source data be unavailable, as well as to serve as a reasonableness check. Also, the appraiser should ascertain vendor and dealer telephone numbers, as well as noting the condition or relative deterioration from new of the asset. Fixed asset data methods utilized are dependent upon the service to be performed with respect to the number of assets, service time frame, value concept or concepts, level of service / detail required, and service application. A simple note pad or pre-formatted data processing entry form may be used. Voice dictation or direct computer entry may be appropriate in certain instances if it is cost effective and professional to do so. If permitted, photographs of the major assets are quite useful. Report production data and/or word processing alternatives are numerous. Generally Word for Windows is utilized for word processing. Excel, a spreadsheet program, may be used for complex cost based valuation assignments and for the asset scheduling. Larger assignments which blend cost based valuation concepts with market based value concepts generally warrant the use of custom designed database management systems and/or sophisticated Excel based systems. In machinery and equipment appraising, generally the Cost and the Sales (Market) Comparison Approaches are utilized, with the Income Capitalization Approach usually inapplicable. • Cost based value concepts include the following (The value applications for these value concepts generally are condemnation or eminent domain matters, equity disputes, financial and/or tax reporting, and insurance valuations or losses.): o Fair Market Value in Continued Use with an Earnings Analysis / Fair Market Value in Continued Use with Assumed Earnings (sometimes called Value in Use), o Fair Value (for financial reporting, considering market information), o Reproduction Cost New, o Replacement Cost New, and/or o Depreciated Replacement Cost. • Market based value concepts include the following (Usually these value concepts are used in financings or the purchase / sale of assets.): o Fair Market Value - Removed (in exchange, user to user, to a dealer, or from a dealer), o Orderly Liquidation Value (assuming removal of the assets to another location or in place and in use), o Forced Liquidation Value (assuming a properly advertised and conducted auction). In either cost or market based valuations direct contact with vendors and dealers is professionally desired. Reliance upon independent publications should be avoided unless the source data for the publication is well understood and the information contained therein is of sufficient quantity (many assets), detail and current date as to persuasively indicate the value. Information from publications should be verified for reasonableness by direct contact with vendors or dealers. Cost based valuations usually require verification of invoices, discussions with plant engineers and certainly discussions with knowledgeable vendors. Market based valuations require contact by the field appraiser with knowledgeable vendors or dealers, as well as verification of information obtained from at least one other source. Reliance upon a single source should be avoided, unless this source in turn has multiple sources of information. Overall, appraising is an art, not a science, whereby the professional appraiser utilizes all available sources of information in a cost effective manner to provide value information appropriate to the degree of accuracy warranted by the purpose of the appraisal. Examples of cost based and market based valuations Example 1: Simple cost based valuation assignment. • Purpose – Purchase Price Allocation • Value Concept – Fair Market Value in Continued Use with Assumed Earnings • Service Methodology – Current Replacement Cost New less physical deterioration and functional obsolescence • Asset – Welex Model 150 Plastic Extruder (manufactured and installed in 2005) $150,000 (cost of base extruder, fob Philadelphia)   $10,000 (shipping to plant site)   $10,000 (rigging and floor installation)   $20,000 (excavation and foundation)   $15,000 (mechanical systems and local electric)   $12,000 (engineering, design and testing) $217,000 Total Replacement Cost New of installed unit Less depreciation due to physical deterioration based on 3 years expired on a 15-year normal economic life, utilizing Marshall Valuation Service age/life curve the physical deterioration factor is 15% (not 20% straight line). Therefore 100% less 15% depreciation equals 85% good. (Note that the technology is current and excess capital cost is not applicable, and assume no functional obsolescence / deficiencies). $217,000 times 85% (0.85) is $184,450 which is installed Depreciated Replacement Cost. With an assumption of adequate economic support this value is equated to Fair Market Value in Continued Use with Assumed Earnings. Example 2: Same asset valued under market based value concept in order to derive its Orderly Liquidation Value and Forced Liquidation Value for financing. • Direct factor applied to original cost not used since does not consider the age or technology of the asset. Direct factor applied to Depreciated Replacement Cost may be used only if other direct market source information is unavailable and the value conclusion for the specific asset is not material. • Dealers in used equipment indicated they would sell the asset for $100,000. A direct or implied warranty of the dealer is considered to add 10% to the value compared to a user to user willing buyer / willing seller sale. Fair Market Value user to user therefore is $90,000. The time frame to sell is 12 months to realize this amount. The Orderly Liquidation Value definition considers an unwilling seller therefore a reduction of 10% is appropriate. A further reduction of 10% is appropriate since the asset must be sold in 6 months rather than 12 months. Orderly Liquidation Value therefore is $90,000 less 10% for duress and 10% for the 6 month time constraint on sale resulting in an amount of $72,900. • Experience indicates the auction value for such assets is some 75% of Orderly Liquidation Value or $54,675, however direct information from auction tracking source publications indicated that six such assets sold from February to May of 2005 for $45,000 to $50,000. Therefore, with such information being more persuasive than factor based values, a value conclusion of $47,500 (the midpoint of direct market evidence) is considered reasonable for Forced Liquidation Value. Summary of Examples • In summary, an asset which currently costs $150,000 new and is 3 years old has value indicators as follows: $217,000 = Replacement Cost New (installed) $184,450 = Fair Market Value in Continued Use with Assumed Earnings   $90,000 = Fair Market Value - Removed   $72,900 = Orderly Liquidation Value   $47,500 = Forced Liquidation Value • In addition, the insurance values which excludes the excavation and foundation are as follows: $197,000 = Insurance Replacement Cost New ($217,000 less $20,000) $167,450 = Insurable Value Depreciated ($217,000 less $20,000 times 85%) • The valuation of an integrated production facility, such as a chemical plant, refineries, etc., to derive either cost or market based valuation data may warrant comparative analysis with other constructed or sold facilities on a productive capacity basis. Or, such facilities may be valued on a return on investment basis, considering other tangible and intangible assets and a normal working capital requirement, from a financial valuation perspective.