StudentShare
Contact Us
Sign In / Sign Up for FREE
Search
Go to advanced search...
Free

Market Comparison Approach and Asset-Based Approach - Essay Example

Cite this document
Summary
From the paper "Market Comparison Approach and Asset-Based Approach" it is clear that the asset-based approach relies on the rule that investors are never willing to buy an asset for an amount that goes beyond the cost of a comparable asset that would generate similar cash flows in the future…
Download full paper File format: .doc, available for editing
GRAB THE BEST PAPER97.2% of users find it useful
Market Comparison Approach and Asset-Based Approach
Read Text Preview

Extract of sample "Market Comparison Approach and Asset-Based Approach"

One of the most serious bidders is Steve Ballmer, the former Microsoft CEO, who has been part of efforts to make sure that Seattle enjoys NBA action. However, Ballmer has indicated that he can own a team anywhere as he is no longer tied down by work commitments. Shelly has already indicated that she would not consider any buyer who intends to relocate the L.A. Clippers franchise. In addition, she is keen to get a sale price that would leave the Sterlings with “enough” money after the hefty tax obligations (Shelbourne). This presents an issue with the evaluation of such a sports franchise.

Sports franchises are often valued at significant amounts. For instance, the L.A. Clippers were valued at $575 million in January 2014 (Forbes). The values of basketball, football, and hockey teams may seem astonishing as well as ambiguous because it might not be clear how the values of the teams are arrived at. This is because many people do cannot ascertain how a team’s performance, qualities, assets, accomplishments, ticket prices, venue, concession sales, and broadcasting revenue contribution to the overall value. Various approaches are used in valuation: income approach; market comparison, and asset-based approach.

According to Baum, Baum, and Nunnington (67), the value of a team would be computed on the present value of the future net cash flows that it will be in existence. This method utilizes a value estimate based on expected cash flow obtained through the discounted cash flows method. An analyst makes assumptions on how the various value drivers contribute to expected earnings and works backward to compute the present value. This is a common method in valuing sports franchises and it utilizes factors such as team performance, ticket sales, and stadium attributes.

 The market comparison approach uses the competition principles in a free market and depends on the hypothesis that the price of one investment applies to comparable investments with little modifications (Munizzo and Musial 126). The analyst looks at the actual data on generated revenues, one can make comparisons between a franchise that is being valued and other franchises that have recently been traded. Some of the important factors that should be considered include television agreements, revenue streams from the venue, lease or ownership terms, demographics, location, and market size. However, this approach may face challenges due to a lack of accessible data on similar franchises and inconsistencies in value adjustments. 

The common measures include reproduction costs and replacement costs, both of which indicate an amount that an owner is willing to part with to obtain the future cash flows from the asset (Monks and Lajoux 90). However, the asset-based method has been criticized as unreliable when compared with the other two methods in making valuations for sports franchises due to the dominance of intangible assets.

Read More
Cite this document
  • APA
  • MLA
  • CHICAGO
(“Economic paper Essay Example | Topics and Well Written Essays - 500 words - 1”, n.d.)
Retrieved from https://studentshare.org/macro-microeconomics/1647909-economic-paper
(Economic Paper Essay Example | Topics and Well Written Essays - 500 Words - 1)
https://studentshare.org/macro-microeconomics/1647909-economic-paper.
“Economic Paper Essay Example | Topics and Well Written Essays - 500 Words - 1”, n.d. https://studentshare.org/macro-microeconomics/1647909-economic-paper.
  • Cited: 0 times

CHECK THESE SAMPLES OF Market Comparison Approach and Asset-Based Approach

Economics Assessment

Valuation applies the use of increase in product value at each successive stage during the process of production and it is referred to as value added approach, which is applied to avoid double counting intermediate goods value (Dwivedi 61).... Countries with significantly varying number of population are incomparable when using the income approach in... The methods used in calculating gross domestic product include expenditure method that sums up the total spending used on produced goods and services at current market prices....
5 Pages (1250 words) Assignment

The Importance of Company Valuation to Investor, the Shortcoming of DCF Mode

The Importance of Company Valuation to Investor, the Shortcoming of DCF Mode, Residual Earning Model, Z Score Model and Net Asset Valuation Model, EMH (market is Not Efficient) By [Name of Student] [Name of Institution] [Word Count] [Date] The Importance of Company Valuation for Investors For some investors, uncertainty and risk often have the same meaning.... Efficient market Hypotheses Is Not Trustable Many researchers, scholars and investors have theoretically and empirically criticized and disputed the efficient-market hypothesis....
5 Pages (1250 words) Literature review

Asset Liability Management for Pension Fund

These includes the need for an integrated assets/liability management approach for both institutional and function approaches, and the coordination of principles related to diversification, dispersion and matching by currency and maturity.... One consequence of a limited focus on liabilities and ALM is that, in practice, many pension funds have pursued investment strategies measured relative to broad market indices....
9 Pages (2250 words) Article

Depreciated Replacement Cost Valuation Approach

Depreciated replacement cost valuation approach is an approach which is "a cost-based method of arriving at a value for assets which are normally never exposed to the open market" (Plimmer & Sayce, n.... There are many different reasons as to how and why a depreciated cost valuation approach could be used by a client to value the freehold interest of a specialized production plant, and in order to be able to properly acknowledge and understand these reasons, we must not only use proper and efficient examples to prove this case, but as well, we must discuss all of the key and related issues that are interrelated to this issue overall....
4 Pages (1000 words) Essay

Estimating Human Capital - Grounded Theory Approach

The research will also utilize the Grounded Theory Approach as a means of evaluating the appropriateness of the human capital approach and methodology for evaluating the human resource base.... However, concepts like depreciation and other conceptual measures have proven to be problematic since there is no defined approach and method that scientifically deduce their worth.... Hence, the motivation for this study is to examine the grounded theory approach and analyze how it operates as a means of measuring human capital and its challenges and weakness....
16 Pages (4000 words) Research Paper

Fixed Asset Valuation

This approach is only used if the company uses fixed assets to produce income.... The approach takes root from the market data approach since it involves an analysis of what the current market is paying.... The author concludes that fixed assets are important in the presentation of financial reports of a limited company because of the fact that they represent a significant portion of the total assets....
11 Pages (2750 words) Term Paper

Capital Asset Pricing Model

From the previous normative approach to the now positive approach, these theories and practices have been used to examine the causes and reasons for investor reactions to corporate decisions in relation to their financial and investment decisions.... 7)A firms value has been described "as the sum of the discounted values of the free cash flows released by an asset," wherein the rate of discount is gained out of computing the sum of the risk-free rate and the "product of the assets beta and the market premium" (Magni, n....
6 Pages (1500 words) Coursework

Bond and Equity Valuation, and Harry Markowitz Theory

Naturally, absolute valuation methods analyze the fundamentals as an effort to calculating the intrinsic value of an investment, and with portfolio managers in charge, this requires a specific approach to understanding the asset and liability portfolios (Calmos Research, 2004).... On the other hand, relative valuation is more of a comparable approach.... irstly, as a portfolio manager, one needs to have an utter understanding of the different approaches but relative to the bonds and equity valuation processes; the comparable approach is significant in this subject....
12 Pages (3000 words) Coursework
sponsored ads
We use cookies to create the best experience for you. Keep on browsing if you are OK with that, or find out how to manage cookies.
Contact Us