Question

What basic principle of finance can be applied to the valuation of any investment asset?

Answer 1

Answer:

Explanation:.

A basic principle of finance is that the value of any investment is the present value of all future net cash flows generated by the investment .PVo=CFs/r

It's all depend upon the cash flow in the Industry. We have to consider some points before valuation of the assets.

 First determine the future cash flows

 Second determine required rate of return .

Finally discount rate needs to apply in the future cash flows to the rate of return.

Answer 2

The ‘basic principle of finance’ is that the ‘value of any investment’ is the ‘present value of all future cash’ net flows as generated by the ‘investment’.

Explanation:

• It is basically dependent on the different cash flows in the industry which need to be taken into consideration before evaluating the assets.  

• It is important to first ‘determine the future cash flows’, and then determine the required rate of return.  

• Thereafter the discount applies to the future cash flows to the rate of return. It can be shown by the following formula- PVo = CFs/r.  

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