The formula to calculate the Estimated Recovery Value (ERV) is:
\[ ERV = \frac{RR}{100} \times BV \]
Where:
ERV, short for estimated recovery value, is a metric used to describe the total amount of value a company could extract from another asset that is undergoing a liquidation event such as a company going bankrupt. The book value is also considered the net present value of an asset and a recovery rate is a percentage of an asset that can be recovered during the liquidation event.
Let's say the recovery rate (RR) is 50%, and the book value (BV) is $200,000. Using the formula:
\[ ERV = \frac{50}{100} \times 200,000 = 100,000 \]
So, the Estimated Recovery Value (ERV) is $100,000.
Definition: Percent recovery is the percentage of the original amount that is recovered after a process.
Formula: \( \text{Percent Recovery} = \left( \frac{\text{Recovered Amount}}{\text{Initial Amount}} \right) \times 100 \)
Example: \( \text{Percent Recovery} = \left( \frac{80}{100} \right) \times 100 \)
Definition: Estimated Ultimate Recovery (EUR) is the total quantity of oil or gas that is expected to be economically recovered from a reservoir.
Formula: \( \text{EUR} = \text{Initial Reserves} + \text{Cumulative Production} \)
Example: \( \text{EUR} = 500 + 300 \)
Definition: Cost recovery percentage is the percentage of costs that are recovered from the total costs incurred.
Formula: \( \text{Cost Recovery Percentage} = \left( \frac{\text{Recovered Costs}}{\text{Total Costs}} \right) \times 100 \)
Example: \( \text{Cost Recovery Percentage} = \left( \frac{70}{100} \right) \times 100 \)
Definition: The recoverable amount is the higher of an asset's fair value less costs to sell and its value in use.
Formula: \( \text{Recoverable Amount} = \max(\text{Fair Value} - \text{Costs to Sell}, \text{Value in Use}) \)
Example: \( \text{Recoverable Amount} = \max(150 - 20, 130) \)
