9. External economic obsolescence and the resale discount caused by the economic difficulties of a seller

The sale of the commercial vessel or other real asset of the marine company unlike acquisition frequently has the compelled feature and is inconvenient for the owner.
           Apparently, any circumstances of the property rights sale have a compelled feature and difficulties (economical obstacles) for the proprietor of the commercial vessel as the sum of money for which the property is exchanged is usually more liquid and practically does not demand operational service.
           The liquidation value (the value at the compelled sale) is a widespread standard concept of an appraisal.
           The value in case of the «compelled sale» differs from the market value. The difference corresponds to the resale discount on the market value if it is supposed, that asset selling occurs in the circumstances when one of the parties experiences difficulties, and the second party is informed about the difficulties experienced by the first of the parties and (or) when selling occurs in the period too short for the adequate marketing exposure and if difficulties can be evaluated in value units.
           The value at the compelled sale – the sum of money which can be received from this sale of a commercial vessel or other real asset of the marine company in terms too short for the adequate marketing exposure according to the concept of market value.
           The cases with not a voluntary seller or a buyer, and also with the buyers informed of difficulties experienced by the seller are referred to the circumstances of the compelled sale.
           For commercial vessel estimation or other real assets in case of the company’s bankruptcy or re–structuring that is in the mode of the compelled sale, the following additional concepts of the value can be applied:
           – Liquidating value systematic (the value in case of the commercially ordered liquidation) is an evaluation of a typical sum of money which is expected to be received from the sale of a commercial vessel or other asset of the marine company provided that for the seller there is a certain reasonable period of time for search of a buyer and that he is obliged to sell a vessel «in that kind as she is, in that place where she is»;
           – Liquidating value compelled (the value in case of the accelerated liquidation) is an evaluation of a typical sum of money which is expected to be received from the open sale spent properly with adequate advertising provided that the seller is obliged to sell the vessel urgently «in that kind as she is, in that place where she is».
           The first of the presented concepts of liquidation value can correspond to a systematic sale of property of the companies–bankrupts which is done by temporary administrations (competitive or arbitration managing directors) under the control of the supervisory boards or committees of creditors.
           The second of the presented concepts of liquidation value to a greater degree corresponds to the initial value (the starting price) for vessels or assets of the marine companies sale at the auctions.
           In various techniques of evaluation for the compelled sale the market value which then decreases for the liquidation discount is accepted as the basic value.
           The economic bases for the compelled sale valuation are, in essence, two factors which can influence the value independently as well as jointly:
           – Difficulties experienced by the parties – the seller or the buyer, shifted to the seller, and difficulties should have a value index;
           – Too short period for the adequate marketing for selling of the commercial vessel or other asset by the market value, in other words, the limited term of the market exposure.
           The influence of the exposure period on the value and the resale discount to the market value is considered in other section (Chapter 10).
           In the given section the influence of economical difficulties of the seller or the buyer shifted to the seller on the value and the resale discount to the market value is evaluated.
           The causes of economical difficulties can have external character or internal, that is integral inherent in an estimated vessel or other real asset of the marine company.
           External causes of economical difficulties for sale and discounts on the value are predetermined by the characteristics of the commercial vessel and features of technology of its construction, productive operation and recycling.
           External cause of economical difficulties for sale and the discounts to the value can be the decisions of administrative bodies concerning property rights: property, economic management or administration.
           External difficulties of commercial vessel sale and the discount to the value are usually connected with the demand for additional investments into the transferring through the basic technological stages: manufacture, productive operation and recycling.
           The subject of the determination of the discount to reproduction cost to the level of the market value of a new vessel corresponding to the solvent demand of investors arises as a link in more general expert subjects.
           Considering the general technological stages – manufacture, productive operation and recycling, it is possible to show that the options of property rights transfer circumstances (sale, rent, leasing, etc.) when there is a change of proprietors according to the change of technological stages have to some extent inconvenient character for one of the parties – for the party which, before the sale, is the proprietor of the commercial vessel or other asset subject to sale.
           The financial assistance for the manufacturer for indemnification of economical difficulties, let us assume, grants at the expense of an additional financial source – the subject interested in the development of industry, or an overpayment in case of superfluous demand is the basis for concession in value of commercial vessel to the company–operator purchasing vessel for productive operation.
           The sale of the commercial vessel by the ship yard to the company–operator the shipbuilding company usually is not carried out by a uniform financial transfer after the finishing of construction, but stage–by–stage financing and accordingly stage–by–stage transition of the property rights is applied.
           As the investor the financial institutions can be involved. Also there can be done the installment sale, the transfer to rent, including for the terms of leasing etc.
           The variety of kinds of cooperation between the shipyard and the company–operator in present indexes does not affect the sale circumstances when the transfer of the property rights for the vessel is provided, connected with the difficulties for the seller.
           Discount to the vessel value that is a consequence of economical difficulties of one of the parties is directly connected with the concept of economical obsolescence.
           Economical obsolescence D₅ (in other words, external obsolescence) characterizes the reduction of the vessel value or other asset of the marine company under the influence of environmental factors.
           External economic obsolescence D₅ does not possess properties to accumulate over the vessel years (or other asset of the marine company), as internal irremovable depreciation, for example, as irremovable physical depreciation D₂ or irremovable functional depreciation D₄. External economic obsolescence D₅ influences equally any similar vessels or other real assets irrespective of age.
           As the new vessel do not experience irremovable internal depreciation which will accumulate over the time and is subject only to the external economic obsolescence characterizing macroeconomic environment rather than a vessel, it is possible to determine the value by the cost approach in dependence on the market value of a new vessel MV (t = 0) but not on the reproduction cost (or replacement cost), using the formula (8.1) and having excluded external economic obsolescence D₅, as: The difficulties of new vessel sale or other new asset of the marine company from the methodological point of view are directly related to the concept of external economic obsolescence D₅ if a basis for evaluation by the cost approach is the reproduction cost RC, instead of the market value MV(t = 0) of a new vessel (or other new real asset) which age is equal to zero t = 0.
           On the specified methodological bases the external economic obsolescence D₅ in present estimation arises once – when selling a new vessel.
           The external economic obsolescence D₅ is equal the discount for the replacement cost RC to market value of new vessel MV(t = 0) which is required both for the internal, and the external causes.
           The external economic obsolescence D₅ corresponds to the difference of the replacement cost RC and the market value MV(t = 0). And if a basis for the vessel estimation by the cost approach is not the replacement cost RC but the market value MV(t = 0) of the new vessel the external economic obsolescence is equal to zero: D₅ = 0.
           The substitution of the replacement cost RC for the market value of the new vessel MV(t = 0) in the formula of the cost approach (8.1) corresponds to an exception of the external economic obsolescence influencing equally on the value of the similar vessels, both new and not new.
           The causes that are not predetermined unequivocally by the vessel characteristics (or other real asset of marine company) are related to the number of the external causes of difficulties in he process of sale and for the vessel value discount.
           For example, the external cause of economical difficulties for sale and discount to the value which are not arises from the commercial vessel characteristics can be the decisions of administrative bodies concerning the property rights, for example, the decision of limitation of industrial quotas for ocean biological resources development if it is a question of fishing vessel value discount, of seller difficulties and of external economic obsolescence.
           The difficulties of the vessel sale arising for the internal reasons are methodologically predetermined by the connection of the components influencing the value, in particular the equipment of the commercial vessel and stocks replenishment of working assets after the vessel acquisition.
           The internal causes of economical difficulties for sale and discounts to value are reasoned by the vessel characteristics, features of the «know–how» of shipbuilding, productive operation and recycling.
           The obstacles to the sale of the ship and the cause to value discount are thus usually predetermined by demands for additional investments during transfer through the basic technological stages: manufactures, productive operation and recycling.
           When selling the vessel (or other asset of the marine company) in the circumstances of transfer through the basic technological stages due to the natural reasons from that party which is proprietor of the vessel, to the second party are required concession as it is the owner of the ship who has no alternative for vessel sale and the second party – the owner of financial resources –does not experienced any difficulties.
           Internal obstacles to the vessel sale, connected with requirements for additional investments during transformation through the basic technological stages and the corresponding reasons of the value discount can be methodologically redefined in relation to the limited time of exposure for commercial vessel sale without the discount to value, that is the obstacles to the sale of the commercial vessel and the cause of the discount to value in case of limited exposure period can be considered as transformation of equivalent difficulties to the sale connected with demands for additional investments into transformation through the basic technological stages.
           At the same time during great duration of commercial vessel productive operation she can be sold at market value, excepting the circumstances of sale compelled due to causes when the compelled character can be shown in the fact of the limit period of the marketing exposure is less than demanded duration of exposure for vessel sale at market value.
           The limited duration of the vessel sale is unlikely to be the reason for the value discount during the period of commercial vessel construction or during the utilization period, as the duration of these periods usually essentially less than the duration of the commercial vessel productive operation period and, possibly, less than the demanded exposure period for sale at the market value.
           Hence, during the commercial vessel construction and during the utilization stage for transfer from the production phase to the stage of productive operation, and also for transformation from the stage of productive operation to utilization when determining of economic obstacles and value discounts the internal causes depending on characteristics of the commercial vessel and the sequence of technological stages are dominating.
           For the internal causes at sale the difficulties are experienced by the seller of commercial vessel who should give concession to the party purchasing the asset and finance this concession at the expense of one of the following sources:
           – At the expense of the economic assistance, for example, of the government or the company–sponsor that is the obvious or indirect owner of commercial vessel seller, interested in development of subordinated shipbuilding;
           – At the expense of own incomes received from another activity;
           – At the expense of the concession received earlier from the former owner of the commercial vessel;
           – At the expense of noticeable prevalence of the demand over the supply.
           The question arises, to what extent funding of shipbuilding and industry of the marine engineering manufacturing is logical, in particular, from the government or the company–sponsor and in what is the interest of this party.
           Development of economy and industry in the XX–th century shows, that usually the governments of some or other states supported the development of shipbuilding or other hi–tech industries.
           After the Second World War such governmental support arrived in shipbuilding of Japan (besides the investments into radio electronics and into the chemical industry) therefore this country has occupied and some tens years kept world leadership in the field of civil shipbuilding according to the total tonnage serially launched vessels, having superseded with this place Great Britain.
           In the nineties of the last and at the beginning of this century the economic policy of the government aid for ship–building industry practices the Republic of Korea which has superseded Japan today to the second place in civil shipbuilding.
           The shipyards of china are characterized by the greatest rates of shipbuilding industry growth by relative magnitude though the total amount still lags behind the shipbuilding in the Republic of Korea and Japan.
           The same situation is typical for other industries which are not connected with shipbuilding but taking a similar place in the economy. The help of the USA government as tax privileges for the aircraft building industry at the Boeing enterprises can be mentioned a close example of such support.
           The existence of concession and sufficient efficiency of financing sources in economy are a necessary condition of shipbuilding industry development and other hi–tech industries characterized by the great share of the added value as a part of the production price and perspective from the point of view of intangible assets manufacture and accumulation, in particular, the industries concerning ocean development. For example, the shipping company is compelled make a concession to the party buying a vessel for utilizing it as a scrap, assuming that this concession is compensated at the expense of other activity of the shipping company. In the given example the obstacle of the shipping company which is the cause of the compelled concession to the buying party is connected with the need for vessel maintenance commissioned from operation before utilization for scrap.
           And the concession of the shipping company to the enterprise utilizing the vessel has been financed by advance payment as a concession of the ship–building yard to the shipping company the experiencing obstacles when selling the new vessel after construction.
           The source of concession financing for the ship–building yard influences at all technological stages (construction of commercial vessel, productive operation and utilization).
           To determine the discount of reproduction cost RC to the market value of the new vessel MV(t = 0) the following difficulties arising of the internal causes and paid finally by the investor interested in innovative development of shipbuilding and technology of ocean development are taken into consideration:
           – After the construction before the sale and productive operation the vessel blocks resources of the ship–yard which could be used productively for the designated purpose and the operational expenses are required that is an obstacle for the shipbuilding company;
           – For the productive operation after construction the replenishment of working assets is required that is an obstacle for the buying party expecting the discount to the value, shifted to the shipbuilding company.
           The last of named obstacle is shifted by the shipping company–operator to the shipbuilding company because the company–operator owning money instead of real property has alternative possibility not to buy a vessel.
           After the completion of construction the vessel is subject to sale to the company–operator that is linked with the complications of the parties shifted to the seller, as these complications are connected with vessel input at the following technological stage – productive operation.
           Prospective expenses before the commercial vessel sale after the completion of construction, or the missed benefit of the ship–yard company arising, for example, in view of blocking of the capital or resources by the constructed vessel, are the basis for definition of the resale discount which represents the difference of reproduction cost and the market value of a new vessel.
           It means, that the sale of a new vessel occurs in circumstances when one of the parties experiences difficulties, and the second party is informed about the difficulties experienced by the first party.
           Difficulties concern:
           – Missed benefit of the manufacturer when the manufactured vessel blocks the real assets of the ship–building enterprise before she is sold;
           – Compelled expenses of the working assets replenishment connected with accepted obligations of the buyer to put the vessel into operation at the stage of productive use (the obstacle shifted to the ship–building enterprise – the seller).
           The size of the resale discount should be correlated with the above mentioned expenses for putting the commercial vessel into operation after completion of construction or (and) with the missed benefit of the ship–building enterprise before vessel sale.
           The methodological requirements and assumptions based on an estimation of named obstacles having the internal cause following from characteristics of commercial vessel in the circumstances of transportation between two technological stages – construction of commercial vessel and productive operation are considered below in sequence of sections (А, В and С).
           The resulting dependences (9.12 and 9.13) correspond to discount estimation to the commercial vessel value in the circumstances of transfer between the basic technological stages and they take into account the obstacles having the internal cause and are integrally inherent in the vessel.
           A. Manufacturer who is the owner of the commercial vessel prior her passing to the company–operator, makes an investments: gives the new vessel which value is equal MV(t = 0) and receives the value result I1 representing the sum of the market value of a new vessel MV(t = 0), and the certain additional income  consisting of evaluation of economic obstacles clearing – rights of use of released assets and of financial economy of vessel maintenance in a suitable condition after construction.
            Saved finances include expenses to support the workers providing vessel safety, and also deductions and taxes, an overhead charge and financial expenses, for example costs for operating repair of the commercial vessel while keeping her before she is given to the company–operator, power supply while keeping, cleaning, etc.
            The right–of–use value of the released assets of the ship–building enterprise occupied by keeping of a new vessel before she is given to the company–operator, and economy of finances for vessel maintenance are considered below as the precondition for additional determination of  income of the ship–building enterprise determination.
            In the methodological sense the additional income  corresponds for the ship–building enterprise clearing of the obstacles following from the duties of the owner that is the enterprise before the vessel sale. Thus, the value result for the ship–building enterprise after vessel sale is equal MV(t = 0) +.
           The character of ship–building enterprise investment into commercial vessel sale to the company–operator is illustrated by the scheme

MV(t=0)∏ MV(t=0) +ΔMV1.

(9.1)

The obstacles  experienced before the commercial vessel sale by the ship–building enterprise are applied as a part of methodological preconditions for determination of replacement cost.
           The net present value NPV1 when giving the commercial vessel to the company–operator is equal to the difference of value result MV(t = 0) + and investments MV(t = 0) and makes:

NPV1 = I1 –MV(t = 0) = (MV(t = 0)+ΔMV1) – MV(0) =ΔMV1.

(9.2)

The efficiency of investment at a value of MV(t = 0) for the ship–building enterprise is characterized by the relative magnitude by index R1 which is equal to the proportion of the net present value (that is NPV1 = ΔMV₁) to the investments MV(t = 0) and makes:

R1 = NPV1 / MV(t = 0) =ΔMV1/ MV(t = 0).

(9.3)

The value of the economical difficulties ΔMV₁ experienced by the enterprise before the commercial vessel is given to the company–operator in applied calculations should be correlated as a part of indexes of efficiency and value with operating costs and approximately determined as a share of operating costs C, that is ΔMV₁≈δ_MV1×C, whereδ _MV1 – the relation of economical difficulties value to operating costs.
           B. Buyer, the shipping company–operator buying the vessel for productive operation makes investments which are equal to the sum of payment for vessel acquisition at value MV(t = 0) and the additional investments ΔMV₂ for vessel input in operation and for the replenishment of working assets which are temporarily blocked assets of the company–operator (for long term – before vessel write–off).
           The value result of the buyer is equal to the reproduction cost of the vessel RC that is the company–operator gets the vessel which cannot be reproduced differently as having spent finances at the value equal to reproduction cost RC.
           The character of investment for the buyer when purchasing the commercial vessel from the ship–building enterprise is illustrated by the scheme

MV(t= 0)+ΔMV2 ∏RC.

(9.4)

In other words, the company–operator which conducts the productive operation and being after acquisition the owner of the commercial vessel having replacement cost RC, in the course of acquisition pays the market value MV(t = 0) and accepts the obligation to make out additional investment ΔMV₂ including replenishment of working assets stock.
           The net present value NPV2 for the company–operator buying the vessel is equal to difference of cost result RC and total expenses of the company–operator
(MV(t = 0)+ ΔMV₂) and makes:

NPV2 = RC – (MV(t= 0)+ ΔMV2).

(9.5)

In the relative magnitude the efficiency of investment for the buyer is characterized by index R2 which is equal to the proportion of net present value NPV2 to investments (MV(t = 0)+ ΔMV₂) and makes:

R2 = NPV2 / (MV(t = 0) +ΔMV2) = (RC – (MV(t = 0) +ΔMV2)) / (MV(t = 0) +ΔMV2).

(9.6)

The value of the buyer economical difficulties of the vessel shifted to the seller who is the company–operator when putting the commercial vessel into operation corresponds to the need in working assets OC replenishment, that is ΔMV₂≈OC, where OC – investments into replenishment of working assets (for vessel supply).
           In some cases the expenses for vessel delivery to the place of operation after purchase can be referred to the number of economical difficulties of the vessel buyer, shifted to the seller, carry. It can cause certain objections. The delivery of commercial vessel to the point of destination is usually executed together with delivery of cargoes and with arriving at various harbors that is vessel operation begins at the place where she is bought.
           The same is true for the commercial vessels of other classes. For example, fishing vessel destination after sale is not the marine district of fishery but a set of geographical locations where the fishing vessel is based and where she goes to the fishery marine district. The place of commercial vessel purchase usually refers to the number of these places too.
            C. The balance of interests of commercial vessel buyer – the company of the operator – and the seller – the ship–building enterprise – is accepted as the methodological precondition.
           The established balance of interests of the buyer and the seller consists in conformity of efficiency indexes of their investments:

R1 = R2.

(9.7)

It is necessary to specify, that proportional or other characteristic of interests balance of the seller and the buyer depends on a certain set of factors, supply and demand parity in corresponding market sector, the degree of the control of the parties (up to monopoly) etc. can be referred to this set of factors.
           At the same time as making system assumptions, it is logical to assume the conformity under the factors defining the proportional balance of the parties interests, at least, for, to some extent, perfect market, in which environment the definition of market value or other kinds of value depending on the market value is possible.
           Substituting in the left part of the formula (9.7) the estimation (9.3) of efficiency index R1 of the ship–building enterprise – the seller of the commercial vessel, and in the right part – an estimation (9.6) of index of efficiency R2 of the company–operator – the buyer of the commercial vessel, it is possible to receive balance equation

ΔMV1/ MV(t = 0) = (RC – (MV(t = 0) +ΔMV2)) / (MV(t = 0) +ΔMV2),

(9.8)

or after transformations it is possible to derive the equation

MV2(t=0)+(ΔMV2 +ΔMV1 -RC)× MV(t=0)+ ΔMV2 +ΔMV1=0.

(9.9)

The equation (9.9) has the following solution concerning the interdependence of replacement cost RC and market value MV(t = 0) of the new vessel with the account difficulties ΔMV₁ of the seller – the ship–building enterprise and difficulties ΔMV₂ of the buyer – the shipping company–operator, shifted to the seller:

RC=MV(t=0)+ΔMV2×ΔMV1/MV(t=0)+ΔMV1+ΔMV2.

(9.10)

After substituting of assumptions concerning values of economical difficulties for sale ΔMV₁≈0.2×C and ΔMV₂≈OC the formula (9.10) becomes:

RC≈ MV(t=0)+0,2×C×OC / MV(t=0)+0,2×C+OC.

(9.11)

The value, when the sale of the commercial vessel is compelled for the proprietor, is called the liquidating value and it is defined by subtraction of the liquidating (resale) discount as: MVF = MV – DF.
           According to resultants dependences (9.10) and (9.11), the discount DF to replacement cost RC to determine the market value of the new vessel MV(t = 0), sensitive to the obstacles having the internal causes, being integrally inherent in the vessel in the circumstances of transfer between the basic technological stages, it can be defined in the absolute magnitude as:

DF=RC-MV(t=0)=ΔMV2×ΔMV1 / MV(t=0)+ΔMV1+ΔMV2,

(9.12)

and in the relative magnitude (that is in relation of the discount to the replacement cost) is equal the external economic obsolescence
D₅= ( ΔMV₂×ΔMV₁ / MV(t=0)+ΔMV₁+ΔMV₂) / RC.
           The received discount characterizes the external (economic) obsolescence in relative magnitude D₅=(RC-MV(t=0))/RC arising once after transfer from construction to productive operation, influencing the value of any vessels of similar class (or other real assets of the marine company) as the macroeconomic factor irrespectively of vessel years, and characterizing in the relative value the difference of market expenses for vessel construction, on the one hand, and market value of the new vessel, on the other hand, for which the value of depreciations of other kinds are equal to zero.
           The value for the case of forced sale MVF, with the account evaluation of economical obstacles of the seller ΔMV₁ and evaluation of economical obstacles of the buyer ΔMV₂ shifted to the seller, is defined depending on the market value MV and the specified difficulties by the equation
MV=MVF+ΔMV₂×ΔMV₁ / MVC + ΔMV₁ + ΔMV₂, that is
           MVF²-(MV-ΔMV₁-ΔMV₂)×MVF+ΔMV₂ ×ΔMV₁=0.
           Not applying for mathematical severity and excepting possible negative results in a quadratic discriminant, the value for conditions of compelled sale MVF of the commercial vessel or other real asset of the marine company depending on the market value MV and the specified difficulties their present values ΔMV₁ and ΔMV₂ is determined as:

(9.13)

And if the radicand is negative and the equation has no solution it means, that difficulties are more powerful than the value of the commercial vessel which should be given free of charge or to liquidate only for the purpose of economical difficulties clearing. Then the balance of interests of the seller and the buyer by the formula (9.7) is not taken into account in calculation, and the concept of liquidation value is subject to redefinition according to which the liquidation value means only an estimation of the manufacturer clearing from difficulties.
           The replacement cost RC discounts to the market value of the new vessel MV(t = 0.0) are required due to the regular causes (external, macroeconomic or absolute), and to irregular (internal). The same concerns the definition of the causes of external economic obsolescence D₅.
           The economical difficulties having the regular (systematic) cause influence the value irrespectively of the difficulties having irregular (non–systematic) cause. And non–systematic causes of external economic obsolescence and the discount to the cost of the new vessel usually have the natural character that was considered above and are connected with the necessity to overcome the difficulties experienced by the parties shifted to the seller. The non–systematic causes of external economic obsolescence and the value discount reveal themselves in a vessel property turnover.
           The systematic (external) causes of wear and discounts to the value can have the artificial nature apart from vessel characteristics in itself and reveal themselves in process of productive operation of the vessel rather than in turnover. The external cause of economical difficulties for sale and discounts to value can be instability of the cargoes transportations market or administrative limitations, for example, the industrial quotas for the ocean biological resources development, influencing the reduction of the operational period for vessel within a year.
           It should be taken into account that the reduction of the operational period is connected with the reduction of the good, associated by the owner with possession of the commercial vessel and its productive operation, and with proportional reduction of operating costs C.
           Thus, the discount to the value of commercial vessel owing to the difficulties arising for the external causes corresponds with loss of interest rate in a proportion of reduction of the good and annual operating costs.
           For example, when there are limits of annual income [I] in relation to the technological capabilities of the commercial vessel for development of the ocean resources (according to the income I) the relative discount to the value corresponds i×[I]/I.
           The given type of the external economic obsolescence arising out of the artificial causes is equal to the product of interest rate (or the total risks) by the limiting restriction of commercial vessel productive operation not to constraint of productive operation in relative value (or otherwise), and, that is the external economic obsolescence arising for the regular causes, corresponds to the value loss in proportion of relative efficiency index, let us assume, according to the discounting rate and limitation of productive operation.
           And the upper estimation of the external economic obsolescence arising for the regular causes corresponds to the discounting rate, that is the sum of commercial risks as which can be considered taken place if in a prospective situation productive operation of the commercial vessel is completely limited.
           The rest from one after subtraction of the external economic obsolescence arising because of the external regular causes is summed up to the reminder after subtraction from one of the external economic obsolescence arising for the internal non–systematic causes:

(1-D5)=(1-ix[I]/I)×(1-(ΔMV2×ΔMV1/MV(t=0)+ΔMV1+ΔMV2)/RC.

(9.14)

If as the assumption to consider, that for the external regular causes intensity of productive operation of the commercial vessel and the income is limited in comparison with vessel specification possibilities to 25 % that is to (1-[I]/I) = 25 %, and the discounting rate is equal i = 20 % the value discount owing to the difficulties arising for the external causes corresponds 5 % that is i×(1-[I]/I) = 20 % × 25 % / 100 % = 5 %.
           Substituting expert assumptions concerning an estimation of economical difficulties of seller ΔMV₁≈0.2×C (clearings of the seller from obligations of the vessel maintenance) and the difficulties of the buyer ΔMV₂≈OC shifted to the seller, and defining the relative value of the corresponding discount affecting owing to the difficulties having both the systematic (external) and non–systematic causes it is possible to receive a resultant dependence in order to determine the external economic obsolescence:

D5≈0.95×(0.2×C×OC / MV(t=0)+0.2×C+OC) / RC +0.05

(9.15)

As, on the other hand, D₅ = 1–MV (t = 0)/RC there is a contradiction of the «circulativity», and the initial data and the required result (MV (t = 0) and RC) are presented both in right and in a left–hand side of the received mathematical equation that complicates practical use of the following formula:
            .
The contradiction of the «circulativity» is solved by the division of the initial data and the result in the left and right parts of the mathematical equation.
           Making derivations of mathematical equation (9.15)
           
and considering only positive results the dependence of the new vessel value MV (t = 0) on the replacement cost RC and difficulties can be defined as:

.

(9.16)

Consequently the external economic obsolescence D₅ = 1–MV(t = 0)/RC relative value depending on vessel replacement cost RC and assumptions according to difficulties of the seller ΔMV₁≈0.2×C and the buyer ΔMV₂≈OC shifted to the seller can be defined as:

.

(9.17)

The external economic obsolescence D5 estimation with the received mathematical equation (9.17) or with the other similar formula depending on the accepted assumptions and limitations (ΔMV₁ , ΔMV₂ and [I]) can be applied when estimation is made based on cost approach and the formula (8.1) if the basis for commercial vessel market value determination is reproduction cost RC (or replacement cost).
           The estimation of external economic obsolescence and the discount to value in case of the compelled sale of the commercial vessel (or other asset of the marine company) is made for making practical recommendations for the specified economic indexes determination and also for disclosing of the used general methodological technique (strategy) reception based on an estimation of the parties interests balance suitable for the solution of some similar issues of value estimation and for some tasks of efficiency estimation.
           The external economic obsolescence as the difference of reproduction cost of the commercial vessel (or other asset of the marine company) that is expenses for vessel construction in market prices, on the one hand, and the market value of the new vessel, on the other hand, influences the value irrespectively of the vessel years which is the factor of internal depreciation.
           The external obsolescence (economical) is a macroeconomic index and is directly connected with investment risks though it is earlier evaluated with the account the balance of interests and difficulties of the parties (the ship–building enterprise and the shipping company, shifted on the ship–building enterprise).
           There is a sense to buy new vessels of serial construction even with the account the necessity of overcoming above mentioned economic difficulties.
           The vessels bought at the second hand market (even new enough) cannot be optimal, this is a certain kind of the commercial risk caused by the difference of vessels characteristics from the optimal combination of characteristics of a new serial vessel rather than by ageing.
           Besides the factor of discrepancy of characteristics of the bought at the second hand market to an optimum combination the structure of other risks of the shipping company where shipbuilding can be a way for clearing of these risks is in detail considered below (see article 18.2).
           The surcharge for the ship–building enterprise (the grant, privilege, other) to the market value of the commercial vessel paid by the shipping company when purchasing the vessel to a size of the reproduction cost necessary for shipbuilding by the macroeconomic cause is the investment into system of the shipping company from the specified risks protection.
           Thus, the surcharge to the ship–building enterprise necessary, on the one hand, for alignment of its interests with the buyer – the shipping company – and caused by the internal non–systematic causes, on the other hand, is justified by the external results according to macroeconomic evaluation.

Test questions

1. Factors which are the economic bases for evaluation in case of compelled sale.
            2. Causes of external and internal property of the difficulties experienced by the parties.
            3. Natural causes of economical difficulties in case of sale of the commercial vessel for circumstances of transfer through the technological stages: production, productive operation and recycling.
            4. Conformity of external economic obsolescence absolute value with the difference of the replacement cost and the market value of the new vessel or other asset of the marine company.
            5. Causes of the artificial property for difficulties in case of sale of the commercial vessel and for the discount to the value.
            6. Probability of limits of exposure period for sale of the commercial vessel during construction and recycling phases and stage of productive operation of commercial vessel with the account duration of the listed technological stages.
            7. Sources of concession financing for the buying party caused by natural difficulties for vessel transfer for sale between technological stages.
            8. Internal difficulties when selling the new vessel.
            9. Investments and difficulties of the commercial vessel construction and index of efficiency of clearing the manufacturer from difficulties (the formula derivation).
           10. Investments of the commercial vessel buyer and his difficulties shifted to the seller – the manufacturer of the commercial vessel (the formula derivation).
           11. Index of the buyer investments efficiency (the formula derivation).
           12. Resale discount (the formula derivation) depending on difficulties of the seller and the buyer shifted to the seller.
           13. Proportional parity of the discount to the value of commercial vessel and external economic obsolescence with loss of interest rate.
           14. Estimation of external economic obsolescence of commercial vessel with the account difficulties of the seller and the buyer shifted to the seller.