PROFESSIONAL PRACTICE-II

ARCH-504

ELZA JOSEPH B Arch, FIIA,FIV

 MARKET VALUE.
DISTINGUISH AMONG
CATEGORIES OF VALUE

Professional Practice –ii –ARCH 504 : ELZA JOSEPH

 By valuation the present value of a property is defined.
The present value of property may be decided by its
selling price, or income or rent it may fetch.

The value of property depends on its structure, life,

maintenance, location, bank interest, etc. Cost: means
original cost of construction of purchase.

Professional Practice –ii –ARCH 504 : ELZA JOSEPH

 The market value of a company to holders of common stock
(common stock plus retained earnings on the balance sheet).
The amount for which something can be sold on a given
market. "insurance may only cover the current market value
of your car"
Market value is the price an asset would fetch in the
marketplace. Market value is also commonly used to refer to
the market capitalization of a publicly-traded company, and is
obtained by multiplying the number of its outstanding shares
by the current share price.
The highest estimated price that a buyer would pay and a
seller would accept for an item in an open and competitive
market. Preferred stock is also considered equity although it is
often treated like debt because the dividend is somewhat like
debt by a traded company, and is obtained by multiplying the
number of its outstanding shares by the current share price.
Preferred stock is also considered equity although it is often
treated
Professionallike debt
Practice because
–ii –ARCH theJOSEPH
504 : ELZA dividend is somewhat like debt .
 Book value is an accounting concept. It is simply the amount
that the company's assets (net of depreciation, depletion and
amortization) and total liabilities –
Book value as carried on the company's balance sheet.
(Sometimes book value is referred to as net book value, net
worth or shareholders' equity.)

This balance sheet figure does not measure the firm's earnings
potential and often diverges from the market value of its net
assets.
Rarely is book value alone used by professional business
valuators, though it becomes relevant when specified as a
valuation measure in a contract or statute.

Professional Practice –ii –ARCH 504 : ELZA JOSEPH

DISTINGUISH AMONG CATEGORIES OF VALUE
Book value is also known as "net book value" .
Book value literally means the value of the business according to its
"books" or financial statements.

In this case, book value is calculated from the balance sheet, and it's the
difference between a company's total assets and total liabilities.

1.Book Value vs. Market Value: Book Value is the value of an asset shown on
the books of the organization including the annual report. That value may
be at original cost or market. Market Value is the value of the asset in the
marketplace—what a willing buyer will pay a willing seller.

Asset value: The value of an asset (a piece of equipment, real estate, a

product line or division of a company, or a company) calculated without
regard to how it is financed. Net asset value." As the accounting value of a
firm, book value has two main uses: 1. It serves as the total value of the
company's assets that shareholders would theoretically receive if a
company were liquidated.

Professional Practice –ii –ARCH 504 : ELZA JOSEPH

 Net asset value." As the accounting .value of a firm, book
value has two main uses: It serves as the total value of the
company's assets that shareholders would theoretically
receive if a company were liquidated.

Enterprise Value (EV) is the value of a company’s interest

bearing debt + preferred and common equity + retained
earnings at market value as opposed to book value.
(Retained earnings belong to the common stockholders.)
EV is often called the Market Value of Invested Capital
(MVIC) or Total Enterprise Value (TEV).

Professional Practice –ii –ARCH 504 : ELZA JOSEPH

Corporations can distribute their assets to shareholders in a variety
of ways—paying dividends, capital (non-earnings) distributions, and
stock redemptions and repurchases. Nearly all corporation statutes,
however, set limits on when corporate distributions are legally
authorized.

Some jurisdictions use so-called “balance sheet tests” to decide

when distributions are authorized. As the name implies, these tests
use entries made on the corporation’s balance sheet to evaluate
whether specified accounts are sufficiently large for a particular
distribution to be made.

This book value measure of a company’s financial condition almost

invariably bears little resemblance to reality.

Supporters of “balance sheet tests” generally concede that

historical cost measurements fail to account for the usually higher
going-concern value of the company, but they stress that asset
values provide creditors a valuation “floor”—a guarantee of at least
a minimal amount “legal capital.”

Professional Practice –ii –ARCH 504 : ELZA JOSEPH

 Equity value: The book value of preferred and common stock and
retained earnings.
Equity value is the value of a company available to owners or
shareholders. It is the enterprise value plus all cash and cash
equivalents, short and long-term investments, and less all short-
term debt, long-term debt and minority interests.
The market value of a company to holders of common stock
(common stock plus retained earnings on the balance sheet).
The amount for which something can be sold on a given market.
"insurance may only cover the current market value of your car"
Market value is the price an asset would fetch in the
marketplace. Market value is also commonly used to refer to
the market capitalization of a publicly-traded company, and is
obtained by multiplying the number of its outstanding shares by
the current share price. The highest estimated price that a buyer
would pay and a seller would accept for an item in an open and
competitive
Professional market.
Practice –ii –ARCH 504 : ELZA JOSEPH
 Preferred stock is also considered equity although it is often
treated like debt because the dividend is somewhat like debt

Equity value: The book value of preferred and common

stock and retained earnings.

Equity value is the value of a company available to owners

or shareholders. It is the enterprise value plus all cash and
cash equivalents, short and long-term investments, and less
all short-term debt, long-term debt and minority interests.

Professional Practice –ii –ARCH 504 : ELZA JOSEPH

 market value method and
physical method of
valuation

Professional Practice –ii –ARCH 504 : ELZA JOSEPH

 Market value method and physical method of valuation:
The sales comparison approach is used to find the value of
the property's land based on comparable. Then the costs of
building the property are estimated, taking depreciation
into consideration.
Another aspect that separates this method from other
property valuation methods is what kind of real estate it is
used for. Fair Value is sometimes distinguished from
Fair Market Value because it uses Black-Scholes Black-
Scholes-Merton model( is a model of price variation over
time of financial instruments such as stocks that can,
among other things, be used to determine the price) ,
Lattice Model .and other option valuation methodologies.
... Sometimes used instead of investment value.
Intrinsic Value: Often called fundamental value,
Professional Practice –ii –ARCH 504 : ELZA JOSEPH
intrinsic value is found by estimating the present value of
A lattice model is a technique applied to the valuation of
derivatives, where a discrete time model is required. For
equity options, a typical example would be pricing an
American option, where a decision as to option exercise is
required at "all" times (any time) before and including
maturity.

Lattice model(physics), a physical model that is defined on

a periodic structure with a repeating elemental unit pattern,
as opposed to the continuum of space or space-time.

Professional Practice –ii –ARCH 504 : ELZA JOSEPH

 Methods of Open Lands Valuation.
Introduction: Valuation is defined as an opinion of an
expert who assesses the worth of an asset, be it a
property/ machine/gold or any other item. By valuation,
the present value of land/ property is determined. In
every valuation, land is one of the important components
of valuation.
To calculate the value of a commercial property using the
Gross Rent Multiplier approach to valuation, simply
multiply the Gross Rent Multiplier (GRM) by the gross
rents of the property. To calculate the Gross Rent
Multiplier, divide the selling price or value of a
property by the subject's property's gross rents.
Professional Practice –ii –ARCH 504 : ELZA JOSEPH
What is the 1% rule in real estate?
The aim of the one percent rule is to have the rent be
greater or equal to the mortgage payment, so the
investor breaks even on the property at worst.
The ruleis used for quick estimation, as there are other
costs associated with a piece of property that are not
taken into account, such as upkeep, insurance and taxes.
What is the 1% rule in real estate?
The “2% rule” isn't really a rule as much as it is a
guideline that was created by real estate investors at
some point in history that I'm really not sure of. The 2%
rule says that for a rental property investment to be
“good”, the monthly rent should be equal to or higher
than 2% of the purchase price.
Professional Practice –ii –ARCH 504 : ELZA JOSEPH
 How do you calculate the value of a property?
To calculate the value of a commercial property using
the Gross Rent Multiplier approach to valuation, simply
multiply the Gross Rent Multiplier (GRM) by the gross
rents of the property. To calculate the Gross Rent
Multiplier, divide the selling price or value of a
property by the subject's property's gross rents.
What is fair market value for tax purposes?
Fair market value (FMV) is the price that property
would sell for on the open market. It is the price that
would be agreed on between a willing buyer and a
willing seller, with neither being required to act, and
both having reasonable knowledge of the relevant facts
Professional Practice –ii –ARCH 504 : ELZA JOSEPH