Question

You are a hospital administrator and have decided (with the agreement of the board of directors) to close a nursing wing in your hospital due to low utilization rates in your community. There is other ideas for the space in the future.

As a result, you are to liquidate all tangible assets within the wing (department) within the next six months. Discuss several of the potential tangible nursing assets (supplies, equipment, etc) that are to be sold, and specifically - at what rate?

In your response, be sure to discuss how your organization will come up with the appropriate value of at least three medical equipment items in the time of a national emergency (such as a pandemic?), and what thoughts/calculations will be acknowledged in deciding at what value to price them.

Answer 1

Commonly utilized medical equipment liquidation value is determine by below valuation method:-

Forced Liquidation Value is defined as: The estimated gross dollar amount which could typically be realized from a properly advertised and conducted public sale held under forced or distressed conditions and with a sense of immediacy. Inherent in the definition is the disposal of all assets in an “as is” condition with all expenses of removal and transportation incurred by the buyer. It is assumed that the sale would be conducted by a qualified seller with experience in selling this type of equipment.

Orderly Liquidation Value is defined as: The estimated gross dollar amount which could typically be realized from an orderly sale of the subject assets on a negotiated basis, held under forced or distressed conditions, with a limited marketing period. Inherent in the definition is the disposal of all assets in an “as is” condition with all expenses of removal and transportation incurred by the buyer. It is assumed that the sale would be conducted by a qualified broker familiar with this type of equipment. Note: the specific time period for an orderly liquidation will vary based on the type and quantity of machinery & equipment involved. CEA’s formal reports will state the anticipated liquidation period.

Fair Market Value is defined as: The amount, expressed in dollars, which could reasonably be expected to exchange between a willing buyer and a willing seller with each aware of any factors affecting value or utility and with neither under compulsion to buy or sell. It is further assumed that all items would be sold “as is, where is” and without any warranties or guarantees provided.

Fair Market Value-In Continued Use is defined as: The anticipated selling price which would be agreed upon between a willing buyer and a willing seller for all items under prevailing market conditions and including transportation and installation. Neither party is considered to be under duress. Both parties are assumed to be knowledgeable and aware of all relevant facts affecting the selling price. No warranties or guarantees are assumed to be provided by the seller and all items are sold on an “as is” basis. It is assumed the subject equipment would continue to be operated at its present site and that the business earnings support the concluded value.

Fair Value is defined as: The amount at which the asset or liability could be bought or sold or incurred or settled in a current transaction between willing parties (i.e., other than a forced or liquidation sale). Thus the fair value of the reporting unit refers to the amount that the whole unit could be bought or sold for in a current transaction between willing parties.*

Replacement Cost is defined as: The current cost new, including installation, of a similar new property having the nearest equivalent utility as the property being appraised. This differs from Reproduction Cost which would entail the current cost of an exact replica of the property being appraised.

Example:-

Description	Equipment 1	Equipment 2	Equipment 3
Cost of Purchase (A)	100,000	200,000	300,000
Installation Charges (B)	1,000	2,000	3,000
Total cost of acquisition (A+B)	101,000	202,000	303,000
Depr after 1year @ 10% ( C )	10,100	20,200	30,300
Book Value of Equipment (A+B-C)	90,900	181,800	272,700
Fair Market Value will be different from book value. It depends of the current market demand