Question 1: Taking the definitions within the RICS Red Book (2014) explain the difference between Market Value, Investment Worth and Fair Value? When might each be used?
According to RICS (2014) Market Value is the estimated amount for which an asset or liability should exchange on the valuation date between a willing buyer and a willing seller in an arm’s length transaction, after proper marketing and where the parties had each acted knowledgeably, prudently and without compulsion. This shows that the Market Value is the price at equilibrium where the demanded commodity equals the supplied commodity in an open market. This is the exact price of the commodity in the market and it doesn’t consider the supplier inputs in raw material, tax, or
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This value is determined by the cost of raw materials, labour, taxes and all other cost involved in production process. This price can also be determined by the suppliers own needs example need for cash to pay bills. As opposed to market value, this value may not range anywhere close to the equilibrium point because is not influenced a lot by forces of demand and supply, the supplier requirements might be more than market price and will be unwilling to sell at the market price because it might be a loss for him/her, on the other hand the supplier might have the product price lower than the market price and will be willing to sell it a lower price. This price is used mostly when the supplier want to make a certain percentage of profit, is unwilling to sell unless that profit percentage is reached and the market not controlled by the demand and supply factors. The consumers here have no much say in the price of the …show more content…
Second: The estimated price for the transfer of an asset or liability between identified knowledgeable and willing parties that reflects the respective interests of those parties (IVS 2013).This price takes into consideration what is the right price of commodity without any hidden agendas in the price, as opposed to Investment Worth, Fair value is calculated as the price of the end product which is fair to both suppliers and buyer. Also opposed to market value, here the supplier or buyer might not be willing to buy or sell at this price but other factors such as government policies might force them to sell and buy at this price. This price is mostly set by government and other regulatory bodies to protect consumers from monopoly market, and protect suppliers from
Earlier 2002, the stock price of Agnico-Eagle Mines sharply decreased by $1 finally closed at $13.89. This price has reached one of the lowest level, from the company's historical perspective. As a professional equity portfolio manager, who has a large number of AEM stocks on hand. Acker and his team are necessary to find a proper way to estimated the fair value of AEM as well as its equity. Discounted Cash Flow (DCF) has been chosen to do this job. The theory behind DCF valuation approach is that the firm's value can be estimated by using the expected future free cash flow discounted by an appropriate discounted rate (Koller etc 2005). However several assumptions need to be clearly examined within this approach. The following sections are showing the process of DCF step by step.
According to CSU-Global (2016), fair value is defined to be the price that would be received to sell an asset or the amount that must be paid to transfer a liability in an orderly transaction between market participants at the measurement date. However, there are advantages and disadvantages of fair value, and the three-level hierarchies play the main role in fair value. According to Whittington and Pany (2014), level I is about inputs of observable quoted prices in active markets for identical assets or liabilities, level II is inputs of other observable quoted prices, general for similar assets or liabilities in active markets, and level III is inputs that are unobservable for the assets or liabilities. The hierarchy gives the highest priority or more advantage to quoted prices in active market, level I, and lowest priority or the least advantage to unobservable data, level III. Therefore, the company management must appropriately categorize fair value measurement within the hierarchy and record any disclosures relating to fair value in the notes of the financial statement. According to Shelly (2014), one major advantage of fair value is that it is a clear concept; when the value of an asset goes up the company makes an adjustment of the
When developing a valuation for Richards Building Supply Co, there is key aspects of the prevailing practices and procedures used by financial theorists and valuation consultants to the assessment of cost of capital in order to apply it as a present value discount rate in a traditional present value model. The main structure of business valuation is cost of capital. Key statement states “Value today always equals future cash flow discounted at the opportunity cost of capital (google.com)”. When defining Cost of capital “refers to the opportunity cost of making a specific investment. It is the rate of return that could have been earned by putting the same money into a different investment
Price - This is the amount of money a customer pays in order to purchase the product. Price setting, discounting, credit and cash purchases are things to think about when setting the price.
Price is the second P in the formula. Pricing is to make the product low-cost to the target market and reflect the value of benefits provided. However, this does not mean it should be the cheapest one. It is
...elinquish. Consumers will increase their consumption of any commodity up to the point where the benefit of an additional unit (marginal benefit) is equal to the marginal cost to them of that unit, the market price. Therefore for any consumer buying some of a commodity, the marginal benefit is equal to the market price. By providing a high quality product with acceptable market price to consumer to maximum company profit is our goal.
Managers and shareholders use various models to conduct stock valuations. However, in order to do so effectively it is important to understand what influences stock prices. The article aims to access corporate management as a key influencer of stock value as well as the impact of external factors on this relationship. The study uses practical and scientific methods in accordance to various influential factors such as market conditions, demand, supply, competition, domestic and global markets to value companies effectively.
The price must match with the product that is desired. This is called customer value. Their has to be a fair trade between the two when selling a product. A product can not be over-priced for a cheap item and can not be low-priced for a higher quality item. There has to be a balance.
• Price: The price is the amount of money that is charged for “something” of value.
Price is the values entirety that consumers trade for the advantages of having or utilizing the product or services. Different places and cultural have different spending culture. Therefore the price has to be relevant according to the product offer because it can reflect the image of a
Valuation Principle is the analysis between values of benefits and costs. This gives an understanding for creating decisions in a company. When valuing a company in a competitive market. Its good price will always be the basis rather than the preference or opinion of a person or a firm. Hence, the valuation principle is the commodity or asset to the investors or firm that is recognized by the competitive market. The financial manager will weigh the costs and benefits of decision in utilizing that market price. Of course, if the benefits exceed the costs, the decision made by the financial manager will increase because of the firm’s market value (Fundamentals of Corporate Finance, 2011).
In this price is generally decided by the company and it is not controlled by authorities so that they can make huge profit.
Valuation is one of the core concepts in finance, it is used to study market efficiency and answers the questions related to corporate governance. it is also used to evaluate different investment decisions. Valuation is the method of estimating the worth of an asset. Valuations can be done on company bonds and company investments which include shares, options etc
Value to me is something that exudes usefulness, worth, and posses a benefit or help. Furthermore, value is something that is considered important and beneficial and employs much loyalty from me on my behalf. Value consists of something that contributes to the overall satisfaction in what I believe in and perceive as important to me. Value is defined as a product or service that is perceived by a customer that meets or exceeds the customer 's wants or needs measured by a customer 's willingness to pay for it. Additionally, value commonly depends more on the customer 's perception of the worth of the product than on its intrinsic value (Business Dictionary, 2016).
A company produces a product or service or a combination of both, and in return, receive money as part of the exchange process. Value-based marketing requires that companies charge a price that consumers perceive them as a reasonable value for the product or service they receive. The price of a product depends on several factors such as number of the cost of making the product, the required level of profit "prices of competitors and customers are willing to pay prices.