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Construction Equipment Value
QUESTION:What the value of construction equipment based on?
ANSWER: Heavy construction equipment is routinely used on construction projects that entail earthmoving operations. Owning and operating these machines may comprise a significant portion of the project costs. An important element of the owning costs is the residual value. However, the nature of the residual value of construction equipment is largely unknown.
Many equipment managers circumvent market value by being overly conservative and assuming a zero residual value in the owning-cost calculation. Yet a simple, efficient method of estimating residual values will produce rate calculations that are more accurate, more competitive, and closer to reality.
The true residual value of a machine when sold at any point in its life is an unknown that depends on many factors. Make, model, type and age when sold are the underlying determinants with other factors such as the condition of the machine and the amount of life left on major wear items affecting individual transactions. The state of the economy, the amount of work in the area, and the machine's ability to meet current environmental standards also have a major impact. It is impossible to develop a formula for use under all conditions.
Research examines the residual value of different types of construction equipment to provide a better approach than the rules of thumb currently used by equipment managers. This paper argues that the residual value can be predicted accurately based on publicly accessible data from equipment auctions and publications by manufacturers and their distributors. Related research in agriculture and forestry is reviewed. Data collection and preparation and results from the multi-linear regression analysis are described. Statistical measures of the goodness-of-fit for different possible functional forms of the regression model are given and a sample calculation is presented.
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