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Uncertainty in Valuations Can It and Should It Be Eliminated - Coursework Example

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The author states that uncertainty creates comparative advantage. If uncertainty is absent then a predefined future awaits for every company and there are no competitive opportunities left to be exploited. So it cannot be concluded that uncertainty is always bad…
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Uncertainty in Valuations Can It and Should It Be Eliminated
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Download file to see previous pages Uncertainty can be defined as lack of certainty in a certain state where there are constraints to define the exact nature of the existing state or the future of an outcome. Frank Knight in his seminal work named “Risk, Uncertainty and Profit’ described uncertainty as distinct from risk. It is difficult for the valuer to form an independent opinion on a particular aspect because of inherent uncertainty. Even when all property valuation is uncertain yet they are represented to the client as a single point estimation keeping the context of uncertainty outside the domain. The level of market activity is responsible for the variation in the degree of uncertainties. Economists have generally agreed that lack of knowledge and presence of imperfect information about the inputs used in the process of valuation can cause uncertainty. The outcome can be certain if the estimators are able to forecast the future properly. Uncertainty impacts the process of valuation in mainly two ways: The flow of cash from different investment projects are uncertain and have varying degrees and the resultant is exposed to uncertainty. (French and Gabreilli, 1994, pp.1-2) If there is a need to find out whether a result is a compliance or noncompliance, measurement uncertainty has to be taken into account. The uncertainty in measurement provides some information regarding quality.
The fundamental principles determine the asset values and the premise of valuation provides the opportunity to determine the estimates of the value. The method or process of determining the value of assets varies between assets and the associated uncertainty plays its role in the valuation process but the core principle remains the same for all types of assets. In order to price particular types of investment, various methodologies are used and one of the vital parts of the investment process is valuation. ...Download file to see next pages Read More
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