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4. Valuation methodologies

There are three valuation methodologies that are commonly applied in valuing any asset:

  • Market – Compares the asset with identical or comparable assets for which price information is available. It is often not possible to find market evidence of transactions involving identical assets;
  • Income – Capitalises future cash flows using a discount rate to reflect the time value of money and the associated risks;
  • Cost – Calculates the cost to replace or reproduce an asset.

These approaches can be subdivided into those that are used to estimate the value of individual assets and those that are used to estimate the value of a business.

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