Question

QUESTION: The value of an asset depends on the historical cash flow(s) up to the present time.

ANSWER OPTIONS: True False You need to specifically state IN THE SUBJECT LINE if the answer is TRUE or FALSE.

EXAMPLES OF INADEQUATE RESPONSES: “I think the answer is False.” OR “The correct answer is “C.”

Postings must be no less than 200 words in length to be considered. Any posting less than 200 words in length will not be reviewed.

Answer 1

FALSE

The Value of Asset depends on the Cash flow(s) that asset can produce over its useful life in the future period of the Asset. because the historical cashflows nothing to do with the current asset value.

Asset valuation is the process of assessing the value of a company, real property or any other item of worth, in particular assets that produce cash flows. Asset valuation is commonly performed prior to the purchase or sale of an asset or prior to purchasing insurance for an asset.

Valuation of financial assets is done using one or more of these types of models:

• Absolute value models that determine the present value of an asset’s expected future cash flows. These kinds of models take two general forms: multi-period models such as discounted cash flow models or single-period models such as the Gordon model. These models rely on mathematics rather than price observation.
• Relative value models determine value based on the observation of market prices of similar assets.
• Option pricing models are used for certain types of financial assets (e.g., warrants, put/call options, employee stock options, investments with embedded options such as a callable bond) and are a complex present value model. The most common option pricing models are the Black–Scholes-Merton models and lattice models.
• Fair value is used in accordance with US GAAP (FAS 157), where fair value is the amount at which the asset could be bought or sold in a current transaction between willing parties, or transferred to an equivalent party, other than in a liquidation sale. This is used for assets whose carrying value is based on mark-to-market valuations; for fixed assets carried at historical cost (less accumulated depreciation), the fair value of the asset is not used.