An appraiser must determine the value of an asset for tax purposes. Which of the following is the most likely standard of value the appraiser will use?
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Fair market value is used for tax purposes in the U.S. and based on an arm’s length transaction. Though similar to fair market value, fair value for financial reporting is used for financial not tax reporting. Market value is used in real estate and other real asset appraisals.
Which of the following definitions of value refers to the value that should be the value in the market if the asset is correctly priced?
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Intrinsic value is derived from investment analysis and is the value that should be the market value once other investors arrive at this “true” value. Intrinsic value is independent of short-term mispricing that may occur. Market value is used in real estate and other real asset appraisals. Investment value is the value to a particular buyer.
Which of the following definitions of value is the value to a particular buyer?
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Investment value is the value to a particular buyer and may be different for each investor due to different estimates of future cash flows, perceived firm risk, discount rates, financing costs, and synergies with existing assets the buyer holds.
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