Although "Z" values can be assigned in AutoCAD, we find the simplest way to assign elevation data to DXF files for gridding is to use the layer name. ACAD will accept numbers (including negative values) as layer names, so it's a simple matter to (for example) digitise contours as polylines, then extract the X-Y-Z values for the vertices, where Z is the layer name. Prior to production of the DXF file, smoothing of the contours in ACAD will produce a lot more vertices, and give a more pleasing DEM result. Extraction of the relevant data is quite straightforward once DXF file structure is understood. We find it simpler to use early ACAD release DXF versions (Release 12 preferably) - these can be output from later versions.
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