Statistical Considerations and Graphical Presentation of the Residual Value of Heavy Construction Equipment

Abstract

Hourly equipment cost rates are vital to the long-term profitability of a company. Hourly rates are based on the forecasted owning and operating costs. The residual value is the most elusive element of owning and operating costs. It differs from book value, which is typically calculated for taxation purposes using a depreciation model. The residual value of heavy construction equipment is defined as the monetary value that can be anticipated to be actually realized in an open market transaction. Forecasting it statistically allows for an integrated cost model for heavy construction equipment. A comprehensive study of auction records for various equipment types, makes, and sizes resulted in a statistical model of residual value. Quality of the model was ensured through hypothesis testing and coefficient validation. Residual value grids are intuitive graphical tools used to present the underlying datasets and quickly and accurately forecast residual value with reliability.