The Ability to Value Assets Accurately is at the Heart of the Essay

The Ability to Value Assets Accurately is at the Heart of the Discipline of Finance. Discuss - evidence ExampleInappropriate asset evaluation would fail to determine the actual status of the business deed which would adversely affect the cooking of business strategies.According to Brigham & Daves (2009), Real options are opportunities for management to change the timing, scale, or other aspects of an investment in response to changes in market conditions. (Brigham & Daves, 2009, p.490). Since the in truth options are concerned with the real assets such as plants, fixtures, and land, it enables the management to take timely and appropriate decisions regarding investment strategies. Brigham and Daves also opine that formulation of exemplar and estimation of input is necessary for the valuation of real options in investments. It will be a cumbersome task for the management to determine the exact abide by of real options in investment since it includes intangible components like c ontract, decision to expand or abandon etc. Even though exact valuation of real options is not possible, it helps to determine the sustainability of the proposed project. According to the writers, in recount to valuate the real options more accurately, it is rectify to treat the valuation with a standard model for financial option. Similarly usage of discounted exchange flow valuation and decision tree analysis are also better methods in order to increase the accuracy of valuation of real options (Brigham & Daves, 2009, pp.490-491). If the value of underlying asset (an asset underlies and offers value to the position security or investment) can be properly estimated, then it is possible to find out the value of real options in investment almost accurately. Likewise, while dealing with valuation of real options, it is essential to gibe the payouts precisely in order to bring out maximum relevant facts in the valuation process. The Black-Scholes model is a comparatively better me thod to determine the theoretical value of real