Types of Valuation and Income: Operating and Nonoperating

Types of Valuation and Income
Name
Institutional Affiliation
Types of Valuation and Income
Task One
Attaining accurate knowledge of the worth of a prospectus investment is crucial to every investor. Investors should not pay the excess of the real value of a product. However, depending on the industry that one operates in and the nature of the investment, there are several types of values. Consequently, there are several valuation approaches at the disposal of potential investors. Different assets and liabilities of investors should conform to particular appropriate methods that take into account underlying factors as discussed Mercer and Harms (2008). For one to realize the benefits of valuation, the approach assumed ought to meet particular elements. For instance, the uniqueness of a particular asset or liability. If the market lacks probable comparatives, certain valuation methods may be inappropriate to deploy. It is, thus important for asset and liabilities investors to access a broad range of assessment methods that will meet the peculiar market conditions and nature of the product (Stice & Stice, 2013).
Property and business investors regard that there are too many valuation methods. Determining the right method and actually implementing it to arrive at the correct value is a major challenge. There are four major categories of valuation approaches; Asset Based Valuation, Discounted Cashflow Models, Relative Valuation and Contingent Claim Models. Under each category are further classifications that meet particular valuation conditions. The challenges arise when choosing between valuation methods that tend to overlap or rather differ on certain principles. For example, there is a gap between the Discounted Cashflow Models and Relative Valuation. However, the two methods can be used in the valuation of a business. Choosing between one of them implies adopting certain principles that may be considered wrong in the alternate application. If one decides to apply the Discounted Cashflow Model, remain marketing market neutral without tailoring the method is impossible. In applying Relative Valuation, there is always the challenge of ex...