Question

To find the value of any asset, which of the following methods should be used?

1) Discount the asset's net cash flows by an appropriate opportunity cost and sum up to determine net present value.
2) Discount the asset's cash inflows by an appropriate opportunity cost and sum up to determine net present value.
3) Discount the asset's cash flows by the long-term market interest rate to determine the net present value.

Answer 1

The correct option is 1) Discount the asset's net cash flows by an appropriate opportunity cost and sum up to determine net present value.

Step-by-step explanation:

To find the value of any asset, you should use the method of discounting the asset's net cash flows by an appropriate opportunity cost and sum up to determine the net present value.

This method takes into account the expected profits, potential capital gains, and dividends associated with the asset. In essence, it calculates the present value of future benefits to be received from the asset.