Why Is Asset Valuation Important? An Investment Decision? Describe And Compare Major Techniques For Valuing Bonds And

1665 WordsMay 27, 20167 Pages
Why is asset valuation important in an investment decision? Describe and compare major techniques for valuing bonds and shares. Asset valuation is an integral part of finance management where the valuation process will support the decision making process regarding merger and acquisition related decisions, capital budgeting process and investment analysis. Asset valuation is the process to determine the correct worth of any asset where the risk and return are the important factor to assess the worth. Gitman (2010) stated that the input factor to determine asset valuation are the investor’s required rate of return, amount and timing of return and measurement of risk associated with the asset’s cash flows. The value of any asset can be measured by calculating the present value of the particular asset by discounting the the future cash flows generated over the relevant time period. This is the basic valuation model as per Gitman (2010). Where Ct = The cash flow to be received in year t R = The investor’s required rate of return V = The intrinsic or present value of an asset In the investment decision making process, any company wants to analyse the value of the asset generally bonds and shares so as to know the equitable worth of the company and equitable worth of the asset. Oneself has limited capital outlay for any investment opportunities. The primary objective of investment is to maximise the return at low risk where investment options are categorised based on

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