Join Jim Stice for an in-depth discussion in this video Income approach and the time value of money, part of Finance Foundations: Business Valuation.
- The three primary asset valuation techniques are…the market approach, the cost approach,…and the income approach.…The income approach is the most difficult,…and involves the most uncertainty.…The income approach is the general heading given to…valuation techniques based directly…or indirectly on discounted cashflow analysis,…often called DCF.…To use an income approach in estimating…the fair value of a piece of commercial real estate,…you would estimate the amount of net cash flows…to be generated by the property,…plus the amount for which the real estate could be sold…at some terminal period.…
All of these cash flows would then be discounted…to the present, using an appropriate interest rate.…Yikes! That sounds difficult.…So let's take this step-by-step,…and we'll start with the time value of money.…So let me ask you some questions.…Do you prefer to receive $100 now, or a year from now?…Do you prefer to pay $100 now, or a year from now?…All people prefer to receive money now…and to pay money later.…That's the concept of the time value of money.…
Make sure to check out the Stice brothers' other accounting and finance courses to understand the other economic factors that impact your business.
Lynda.com is a PMI Registered Education Provider. This course qualifies for professional development units (PDUs). To view the activity and PDU details for this course, click here.
The PMI Registered Education Provider logo is a registered mark of the Project Management Institute, Inc.
- Using market, cost, and income approaches to business valuation
- Valuing homes
- Valuing companies by multiples
- Using price-to-sales ratios to value companies
- Using discounted cash-flow analysis to estimate value
- Valuing McDonald's as a case study