On the premature sale of assets

Abstract

Valuing non-financial assets, appraisers usually do not take into account that sometimes their owners need to sell them anticipatory (before the end of their service life). In addition, the sale of an asset provides for a certain marketing period (time to wait for a suitable buyer). We propose a model for assessment the market value of an asset, taking into account these circumstances, based on the Discounted Cash Flow method. The benefits (cash flows) generated by the asset when it is used for its intended purpose in the coming period are assumed to be known. However, in this model, we additionally accept that the premature sale is due to the detection of (real or perceived) threats of a local nature, i.e. related only to a specific asset and its owner. At the same time, we consider the moment of local threat detection and the duration of marketing period of the asset as random variables. The formulas obtained also allow to take into account the impact of inflation, removable failures of the asset and its depreciation during the marketing period.