Posted in Finance, Accounting and Economics Terms, Total Reads: 405
Definition: Abandonment Value
Abandonment value is a term used which refers to the amount that would be received by a beneficiary if the investment is prematurely withdrawn. It basically refers to the value that would be given back to the investor if the invested money needs to be discontinued.
Investments are done by people to ensure that their is an increase in the amount of capital that they possess. The various investment options like fixed deposits, mutual funds etc give a certain rate of interest for a specific duration, which helps the investor to generate more profit. However, in case of a premature withdrawal, the rate of interest is decreased and a lower gain is given to the investor.
This value can vary for a variety of reasons including liquidity, supply-demand factors and implied fair value appraisals performed by certified appraisers. If the company learns that the project is not profitable it may be beneficial for the company to sell the asset at its abandonment value. The thumb rule for making decisions on abandonment value is if the salvage or scrap value comes out to be more than the Net Present Value of the expected cash flows of the asset then the asset should be abandoned.
Urgent requirement of money for personal use, buying goods, medical health etc can be reasons why people break their investments and then receive the abandonment value.