salvage value

(noun)

The estimated value of an asset at the end of its useful life.

Related Terms

Examples of salvage value in the following topics:

  • Depreciation

    • The former affects values of businesses and entities.
    • Generally this involves four criteria: cost of the asset, expected salvage value (residual value of the asset), estimated useful life of the asset, and a method of apportioning the cost over such life.
    • Straight-line depreciation is the simplest and most often used technique, in which the company estimates the salvage value of the asset at the end of the period during which it will be used to generate revenue (useful life).
    • The salvage value (residual value or scrap value) is an estimate of the value of the asset at the time it will be sold or disposed of.
    • Under this method the book value is multiplied by a fixed rate.

  • Depreciation

    • The equipment is assumed to have a salvage value at the end of it's life of 10,000.
    • The straight-line method of depreciation reduces the book value of an asset by the same amount each period.
    • This amount is determined by dividing the total value of the asset, less its salvage value, by the number of periods in its useful life.
    • Since the declining balance method will never fully amortize the original cost of the asset, the salvage value is not considered in determining the annual depreciation.
    • Annual depreciation expense is equal to the original cost of the asset minus its salvage value, divided by the useful life of the asset.

  • Depreciation

    • Depreciation refers to two very different but related concepts: the decrease in value of assets (fair value depreciation), and the allocation of the cost of assets to periods in which the assets are used (depreciation with the matching principle).
    • Fair value depreciation affects the values of businesses and entities.
    • the expected salvage value, also known as residual value of the asset
    • The cost of an asset so allocated is the difference between the amount paid for the asset and the salvage value.

  • Risk Adjusting for the Time Horizon

    • Since stock investments have more time to overcome potential downturns in value, having a longer time horizon can justify more aggressive investing.
    • Also, an option to abandon, where management may have the option to cease a project during its life, and, possibly, to realize its salvage value.
    • Here, when the present value of the remaining cash flows falls below this salvage value, the asset may be sold.

  • Defining the Income Statement

    • An income statement under accrual accounting reflects revenues "earned", where an exchange in value among the parties has taken place, regardless of whether cash was received.
    • Some numbers depend on judgments and estimates (e.g. depreciation expense depends on estimated useful life and salvage value).

  • Par Value at Maturity

    • Par value is stated value or face value, with a typical bond making a repayment of par value at maturity.
    • Par value, in finance and accounting, means the stated value or face value.
    • From this comes the expressions at par (at the par value), over par (over par value) and under par (under par value).
    • Corporate bonds usually have par values of $1,000 while municipal bonds generally have face values of $500.
    • Bond price is the present value of coupon payments and the par value at maturity.

  • Market Value vs. Book Value

    • Book value is the price paid for a particular asset, while market value is the price at which you could presently sell the same asset.
    • Market value is often used interchangeably with open market value, fair value, or fair market value.
    • In accounting, book value or carrying value is the value of an asset according to its balance sheet account balance.
    • In many cases, the carrying value of an asset and its market value will differ greatly.
    • If the asset is valued on the balance at market value, then its book value is equal to the market value.

  • Present Value of Payments

    • As with any security or capital investment, the theoretical fair value of a bond is the present value of the stream of cash flows it is expected to generate.
    • The bond price can be summarized as the sum of the present value of the par value repaid at maturity and the present value of coupon payments.
    • The present value of coupon payments is the present value of an annuity of coupon payments.
    • The present value is calculated by:
    • Bond price is the present value of coupon payments and face value paid at maturity.

  • MVA and EVA

    • Market Value Added (MVA) is the difference between the current market value of a firm and the capital contributed by investors.
    • If the MVA is positive, the firm has added value.
    • where: MVA is market value added, V is the market value of the firm, including the value of the firm's equity and debt, and K is the capital invested in the firm.
    • The firm's market value added, or MVA, is the discounted sum (present value) of all future expected economic value added: MVA = Present Value of a series of EVA values.
    • MVA is the present value of a series of EVA values.

  • Maximizing Shareholder and Market Value

    • There are several goals of financial management, one of which is maximizing shareholder and market value .
    • The idea of maximizing shareholder value comes from interpretations of the role of corporate governance.
    • The idea of maximizing market value is related to the idea of maximizing shareholder value, as market value is the price at which an asset would trade in a competitive auction setting; for example, returning value to the shareholders if they decide to sell shares or if the firm decides to sell.
    • Additionally, short-term focus on shareholder value can be detrimental to long-term shareholder value.
    • Maximizing shareholder and market value is, for some, one of the goals of financial management.