The problem was defined in an article about technological or economic obsolescence
in the September 1968 issue.
In estimating functional and economic obsolescence
, the board of tax appeals (BOTA) weighed two opposite positions: the county asserted the ancillary facilities suffered from no obsolescence, while Kansas Star claimed the facilities were fully obsolete.
In this regard, it is important to emphasize that when we speak about capital depreciation, we are referring not only to the physical wear and tear of the capital equipment but also to the equipment's economic obsolescence
: in other words, a given capital good can be perfectly functional from a technical point of view but completely worthless from an economic point of view.
The company's philosophy of economic obsolescence
posits that it's much more efficient and cost-effective to run trucks until it becomes cheaper to get a new truck than to operate an old one, rather than trying to extend vehicles' working lives by operating trucks until they become functionally obsolete.
* Cost Approach is based on the investment required to replace or reproduce the assets of a business using current prices for labor, materials and operating facilities--less depreciation for physical deterioration and functional and economic obsolescence
. The cost approach requires estimation of the value of the subject company's net working capital, machinery and equipment, real estate and intangible assets.
Deterioration is the physical decline in a building's fabric due to: Extensive use The effect of the elements The ravages of time Obsolescence however is down to: A change in user requirements (functional obsolescence) A building's competitive usefulness and value (economic obsolescence
), or The impact of nearby development and accessibility (external obsolescence).
The functional and economic obsolescence
ratings for WPI's life sciences center were reset to zero in this year's revaluation, which contributed to more than doubling the building's assessed value from just under $8 million last year to $17.1 million this year.
Core investors should consider exiting an investment when they have achieved or outperformed their expected return levels and can lock in performance fees; the capital cost to maintain the "Class A" status is unfeasible due to functional and/or economic obsolescence
at the property; and if an opportunity to convert the property to a higher and better use arises, such as converting apartment units to condominiums.
Candidates for an economic obsolescence
tax reduction have experienced a reduced demand for their product, increased competition, high inflation or increasing interest rates.
Even if a company sees increases in its sales taxes, it might be possible to offset that cost with reductions in property taxes due to external obsolescence (also known as economic obsolescence
where: [L.sub.P] = physical life (years); [O.sub.1] = physical obsolescence (% as decimal p.a.); [O.sub.2] = economic obsolescence
(% as decimal p.a.); Og = functional obsolescence (% as decimal p.a.); [O.sub.4] = technical obsolescence (% as decimal p.a.); [O.sub.5] = social obsolescence (% as decimal p.a.); [O.sub.6] = legal obsolescence (% as decimal p.a.).
"Skinning or dismantling a building is risky but many times necessary to avoid functional or economic obsolescence
. A supplier needs to sometimes consider reformulating the plant or real estate in order to create value." Buchanan has transformed the Lear plant from a single-use operation to an asset that now houses two Tier I suppliers with other manufacturing tenants slated to come aboard soon.