collection, or fine art. These assets can only be
valued using relative valuation models.Figure18.3providesthespectrumofvaluationmodelsrelated
to asset cash flows.
FIGURE 18.3Cash Flows and Valuation Approaches
Uniqueness (or Presence of Comparables)
Inamarketwherethousandsofstocksaretradedandtensof
thousandsofassetsareboughtandsoldeveryday,itmaybe
difficulttovisualizeanassetorabusinessthatissounique
that we cannot find comparable assets. Some assets and
businessesarepartofalargegroupofsimilarassets,withno
orverysmalldifferencesacrosstheassets.Theseassetsare
tailor-made for relative valuation, since assembling
comparableassets(businesses)andcontrollingfordifferences
issimple.Onacontinuum,though,thefurtherwemovefrom
thisideal,thelessreliableisrelativevaluation.Forbusinesses
that are truly unique, discounted cash flow valuation will
yieldmuchbetterestimatesofvalue.Figure18.4summarizes
the choices.
FIGURE 18.4 Uniqueness of Asset and Valuation
Approaches