Question

Take four different assets -- a beautiful Rembrandt pen and ink sketch; a 45 foot sailboat; a succesful pizza parlor; and a unique piece of land situated on 400 feet of beachfront property on Nantucket -- and tell how you could best evaluate each. That is, which valuation method would be best. Tell also the shortfallings of that valuation method.

Answer 1

Rembrandt pen and ink sketch

The best valuation method is a comparable method. Sales of similar sketches by the same artist or similar vintage artists could be used as a comparable, and this could be the basis for the valuation of the sketch. The shortfall of this method is that every sketch is unique and hence the comparable method may not give an accurate valuation.

45 foot sailboat

This is best valued using a market price method. Since 45-foot sailboats are commonly sold and bought in the open market, the approximate price of this sailboat can be estimated by the market price method. The shortfall of this method is that some unique factors such as age and difference in design may not be considered accurately.

succesful pizza parlor

This is best valued using a discounted cash flow method since the sales can be estimated with reasonable accuracy. The shortfall of this method is that selecting the appropriate discount rate may be a complex task.

unique piece of land

This is best valued using an appraisal method. Since real estate, and in particular unique land is difficult to value, this is best done using an appraisal method. The shortfall of this method is that appraisal is subjective and the appraised value may not be actually realized.