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What is an Exit Value?

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  • Written By: Mary McMahon
  • Edited By: O. Wallace
  • Last Modified Date: 10 November 2016
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An exit value is the estimated price which would be received for the sale of an asset or transfer of a liability on the open market. People determine exit values for accounting purposes and these values may be used in a variety of ways. Exit values are distinct from entry values, which reflect the price which would be paid to acquire something.

To determine the exit value, it is assumed that the asset or liability would be transferred in an arm's length transaction. In this type of transaction, the parties involved do not know each other and negotiate through a third party to settle upon a price. It is generally believed that such transactions arrive at the most fair price because buyer and seller act in their own best interests and do not consider the interests of the other party, beyond the point of being willing to make some concessions to work out a deal which will close quickly.

Several different methods can be used to think about exit value. People can look at the present value of the asset, the current selling price, or the net realizable value. Because times are not always favorable for sales, one important thing to consider is what the current market conditions are. If the market is poor an exit value may be low because it is determined by acting as though something needs to be sold immediately and thus a strategic wait for a better price is not possible.

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Exit values can be used in the assessment of a business by a valuator, a determination of a fair asking price, and a number of other settings. When calculating exit value, third party valuators are often used to avoid bias. The person who owns the asset or liability under consideration may be inclined to overvalue it or otherwise fail to estimate the value properly, while someone who has no interest in the value can make a more neutral estimate.

These values are usually calculated under the assumption that the entity which controls the thing being valued would be going out of business and liquidating. By contrast, real world values for things sold by companies which remain in business can be very different because these companies can afford to hold out for a good price and they are not liquidating large amounts of goods and alerting buyers to the fact that bargains may be obtainable with a little bit of negotiation.

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MissDaphne
Post 1

I think it's easy to use a fantasy money value for assets. Just because something has a certain "market value" in theory doesn't mean that you could quickly or easily find a buyer at that price - or even find one at all.

My brother used to collect Magic: The Gathering cards when he was a kid. He would talk about how much this card or that one was "worth" based on what it said in his Magic magazines. My father told him, "You want to know what that card's really worth? Take it down to the pawn shop and see how much they would give you for it."

I thought of the pawn reference after reading this article because of the reference to liquidation. It's kind of the same idea - how much can you get for an item when you're desperate and the buyer knows it?

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