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New method of liquidation value estimation

Author

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  • Smolyak, S.

    (Central Economics and Mathematics Institute, Russian Academy of Sciences, Moscow, Russia)

Abstract

Valuation standards define the liquidation value of an asset as its value within a shortened (as compared to typical) exposure / sale period. However, usually such timings (even when assets are sold at the market value) are random, and the "more" / "less" ratios are not applicable. We treat the liquidation value of an asset as its value in a forced sale with proper marketing and a deterministic exposure period limit. We propose a model for determining the liquidation value, which allows to optimize the seller's marketing policy according to the criterion of the expected discounted benefits. This model takes into account the probabilistic nature of demand for the similar assets and the dependence of this demand on price (information on the price elasticity of demand is not required). The formulas obtained also allow taking into account inflation, the salvage value of an asset, its depreciation during the exposure period, as well as the need to incur selling expenses during the exposure period and the possibility of obtaining additional income from the use of the asset in this period. The dependences of the asset's liquidation value on the remaining exposure period, calculated using the model, differ significantly from those recommended in the literature on valuation.

Suggested Citation

  • Smolyak, S., 2022. "New method of liquidation value estimation," Journal of the New Economic Association, New Economic Association, vol. 55(3), pages 12-27.
    • Handle: RePEc:nea:journl:y:2022:i:55:p:12-27
    DOI: 10.31737/2221-2264-2022-55-3-1
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    More about this item

    Keywords

    liquidation value; exposure period; probability of sale; price elasticity of demand; expected benefi ts of the seller; inflation; depreciation; selling costs;
    All these keywords.

    JEL classification:

    • D46 - Microeconomics - - Market Structure, Pricing, and Design - - - Value Theory
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • M31 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - Marketing

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