Under the guidelines of the Uniform Standards of Professional Appraisal Practice (USPAP) there are three generally accepted appraisal approaches. They are the Cost Approach, the Income Approach, and the Market or Sales Comparison Approach.
The cost approach is based on the principle of substitution. It is calculated by taking the current cost of replacement or reproduction new and deducting various elements of depreciation: physical deterioration, functional and economic obsolescence.
The income approach is calculated by determining the present value of the future benefits of ownership.
Methods for calculation may use –
• Annualized capitalization method
• Discounted cash flow (DCF) analysis
Sales Comparison Approach
The sales comparison approach is also known as the market approach. This is also based upon the principle of substitution. It is calculated by adjusting recent sales and offering prices of similar aircraft to arrive at the most probable selling price of the subject being evaluated.