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state licensure and therefore may require consultation with and reliance on real estate valuations
performed by other parties when performing the asset approach.

d. Intangible Real Property. The income approach is the most commonly used approach in valuing
intangible real property, but the sales comparison approach can also be employed if there is a
reasonable secondary market for the asset. For example, leasehold interests fn 29 may have value
if the company has a favorable leasing arrangement that is transferable. The value is typically
calculated as the present value of the difference between the market lease payment and the lease
payment under the lease, over the remaining term of the agreement. This is another area that, like
real estate appraisal, may be subject to state licensure requirements.

For companies in bankruptcy, some leases may be rejected by the debtor. The valuation of leases
can be an important component of the debtor’s decision to reject or assume leases as part of the
bankruptcy process. However, the debtor may still be liable for some future rental payments on
rejected leases, which should be considered as part of the valuation analysis. In the context of a
solvency study, the full term of the lease is typically considered when assessing lease assets and
lease liabilities. Consideration of lease renewal options must be considered on a case-by-case ba-
sis.

e. Tangible Personal Property. Tangible personal property consists of, among other things, inven-
tory, furniture, fixtures, machinery, and equipment. As with other assets, the methods used to
value tangible personal property fall into one of the three standard valuation approaches — in-
come, market, and cost.

i. Inventory. fn 30 For companies in financial distress, the value of inventory may be signifi-
cantly lower than for a financially healthy company because inventory may not be sold
through the normal course of business.

ii. Machinery and Equipment. Machinery and equipment, as well as other tangible property
such as furniture and fixtures, are typically valued based on the cost or market approach-
es with the income approach being used less frequently.

f. Intangible Personal Property. Intangible personal property can be grouped into several distinct
categories, including the following: fn 31

i. Technology-related intangible assets

(1) Patented technology

(2) Computer software and mask works

(3) Unpatented technology

fn 29 Fishman, Pratt, Griffith, and Wilson, Guide to Business Valuations, 702.5.

fn 30 Pratt and Niculita, Valuing a Business, 361–362.

fn 31 FASB Accounting Standards Codification (ASC) 350, Intangibles—Goodwill and Other.

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