Lesson 19 Exercises – Valuation of Leased Personal Property (The Income Approach to Value)

Appraisal Training: Self-Paced Online Learning Session

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• Lesson 4
• Lesson 5
• Lesson 6
• Lesson 7
• Lesson 8
• Lesson 9
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• Lesson 13
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• Lesson 15
• Lesson 16
• Lesson 17
• Lesson 18
• Lesson 19
• Lesson 20
• Exam

Check Your Knowledge

1. A national manufacturer leases reproduction machines to various businesses within your county. The machines are leased for a one-year term. The rental income is based on the volume of copies produced. The average annual gross income of all machines on lease is reported as $2,700 per machine. The rental income includes a component for sales tax. The reported income appears to be economic in this market.

   You have determined that the machines have an average total life of seven years; however, the average remaining economic life of the machines on lease, as of the lien date, is estimated at four years. Property taxes are 1 percent of the full cash value. Yield rates derived from sales indicates a 13½ percent return. The return on the investment is based on a level terminal income stream premise.

   Other pertinent information:

   • The manufacturing cost per machine is $2,000.
   • The number of new machines held in inventory at the manufacture's warehouse, which is located in your county, is 10 machines.
   • The number of machines on lease in your county as of the lien date is 50.
   • Typical annual expenses (per machine) of machines on lease are $500 for maintenance and $200 for insurance. The expenses are borne by the manufacturer.
   • The salvage value per machine is $500.

   Estimate the taxable value of the machines owned by the manufacturer in your county.

Solution:

2. You are assigned the task of valuing a group of thirteen photocopiers owned by a leasing company.

   These copiers are all on lease in the same city under two-year leases of $1,375 annually per copier. In addition to this flat fee, a charge of 1¼¢ per copy is made, and each machine makes an average of 32,000 copies per month.

   The lessee pays for all delivery costs, the toner and developer fluids, and paper. The company provides all services and maintenance as part of the lease terms, and pays all property taxes. Expenses to the lessor equate to 12 percent of the gross income.

   The machines have a seven-year remaining economic life; with no salvage value at the end of the seven years.

   The appropriate discount rate is considered equivalent to the yield on AAA corporate industrial bonds, which currently is 12½ percent. The effective property tax rate is 1 percent.

   Estimate the taxable value of the photocopiers owned by this leasing company in your county.

Solution: