Microsoft Word peachtree case study
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| 2.3.2 The Income Approach The Income Approach is sometimes referred to as the investment value approach. This approach assumes that an investor could invest in a business enterprise or assets with similar investment characteristics (in particular return expectations, although not necessarily the same business or property. This method is predicated upon the principle of anticipation in that the value of a business enterprise and its assets is a function of future benefits and returns attributable to the business and its assets. The computations used in the Income Approach generally determine that the value of the business is equal to the expected discounted future Income represented by net cash flow) at an appropriate rate of return (discount rate. The ultimate discount rate used in the valuation analyses is developed in such away that it takes into account most of the underlying risks and uncertainties involved with the achievement of the forecasted net cash flow. The risk borne by the investor is twofold (1) Return on the investment, and (2) Return of the investment The return should represent the risk of achieving both, a fair return on and a full return of investment. This can be accomplished by capitalizing a single period Page 20 of 141 Income stream or by calculating the present value (discounting) of a multi‐period forecast. This future look at the Income from a business is speculative by nature and must be considered with that in mind. Most often, history is used as a starting point to develop such a forecast to use in arriving at an estimate of value. The future possibilities should betaken into account as valuation is in essence a prophecy into the future. Download 0.84 Mb. Share with your friends:
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