CHAPTER 5 ASSET VALUATION -- FEB 6 2017

CHAPTER 5 ASSET VALUATION -- FEB 6 2017 - 1 CHAPTER 5 ASSET...

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1 CHAPTER 5 ASSET VALUATION 5.1 INTRODUCTION 5.1.1 Prelude 5.1.2 GASB34 as a Watershed Event 5.1.3 Traditional Scope of Asset Valuation 5.1.4 Approaches for Asset Valuation 5.2 THE DEPRECIATION APPROACH 5.2.1 Straight-Line Depreciation (SLD) 5.2.2 Sum-of-Years Digits 5.2.3 Declining Balance Depreciation 5.2.4 Double-declining Balance Depreciation 5.2.5 Reverse Sum of Years Digits (RSOYD) 5.2.6 Sigmoidal depreciation (s-curve) 5.2.7 Discussion 5.3 THE MODIFIED APPROACH FOR HIGHWAY ASSET VALUATION 5.3.1 The Fixed Value with Respect to Condition Threshold Method 5.3.2 The Adjusted Value with Respect to Condition Threshold Method 5.3.3 Asset Valuation based on Survival Probability 5.4 OTHER APPROACHES 5.4.1 The Cost-Only Approaches 5.4.2 Asset Decomposition and Multi-Criteria Approach 5.4.3 Real Estate Valuation Approach 5.4.4 The User Cost Approach 5.5 ISSUES IN ASSET VALUATION 5.5.1 Comparisons between the Approaches/Methods 5.5.2 Typical Distribution of Value across Asset Types 5.5.3 Estimation of Total Asset Value in the USA 5.6 DISCUSSION AND CONCLUDING REMARKS 5.7 CHAPTER SUMMARY EXCERCISES REFERENCES AND USEFUL RESOURCES FOR ASSET VALUATION 5.1 INTRODUCTION 5.1.1 Prelude Asset management is an ideal platform for incorporating private sector business practices into the administration of public roads. One such asset management practice is the valuation of highway assets owned by public agencies In the private sector, it is inconceivable for investments to be made without knowing the value of the asset in question (see Inset 1) because the financial value of a privately-owned asset is the vital basis for any decision to replace, restore, repair, leave-as-is, sell, or dispose of it. In the public infrastructure management sector, asset valuation can be defined as the assignment of a value to an asset based on its size, material type, age, condition, and cost (original or replacement) in monetary terms as public wealth or equity (FHWA, 2016). Therefore, highway agencies, as stewards of the public road infrastructure, are analogous to private sector managers, as they also are charged with responsibly exercising their options to replace, restore, repair, or leave their assets as is. One way they differ is that highway agencies rarely sell off or dispose of assets (exceptions include leasing a public highway to a private operator or relegating authority over a highway section from state to local status and hence to county or city ownership). In any case, the value of an asset is e xpected to influence a public agency’s decisio n to undertake any of the above actions. Asset values alone do not drive the asset management framework but rather are part of a suite of financial- sustainability metrics and analyses intended to support long-term, responsible investment in assets ” ( Dornan, 2001; FHWA, 2016).
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