Enter the recovery rate and the book value of an asset into the calculator to determine the estimated recovery value (ERV).
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The following formula is used to evaluate the estimated recovery value.
ERV = RR /100* BV
- Where ERV is the estimated recovery value
- RR is the recovery rate (%)
- BV is the book value ($)
To calculate the estimated recovery value, multiply the recovery rate by the book value.
What is ERV?
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.
How to calculate ERV?
- First, determine the book value of the asset or company.
For this example, we will look at a single asset to make the calculation simple. In this case, the book value of the asset is found to be $40,000.00.
- Next, determine the recovery rate.
During a liquidation event, the recovery rate of this asset is expected to be 85% because it can be sold on the open market.
- Finally, calculate the estimated recovery value.
Using the formula above, the ERV is calculated to be:
ERV = RR * BV
ERV = .85 * $40,000
ERV = $35,000.00.