Explore BrainMass

Explore BrainMass

    What are the main problems with the use of comparable?

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    1. What are the main problems with the use of comparables? Provide specific real-world or numeric examples to illustrate your discussion response.

    2. What are the perfect market assumptions? Are they important? Why, or why not?

    3. Describe in depth the Capital Asset Pricing Model (CAPM). Under what specific circumstances does the CAPM model work and not work?

    4. Describe the relationship between comparables and net present value. Are there any cautionary issues? Justify your response.

    Contrast Google and Wal-Mart. Which agency biases, problems, or conflicts are likely to impact Google worse than Wal-Mart, and vice versa? Substantiate your response.

    © BrainMass Inc. brainmass.com June 4, 2020, 3:14 am ad1c9bdddf

    Solution Preview

    1) One of the major problems with the use of comparables is the fact that there are a number of supplementary factors that may make it difficult to accurately ascertain the pertinent similarities between properties, projects, and other investments. It is often difficult to ascertain the effect that the market conditions can have on the similarities between differing projects, properties, etc. which will make it difficult to develop a truly accurate and congruent estimation of the value characteristic similarities between these differing properties etc. Another problem with the use of comparables, is the fact that it is a lengthy and time-consuming process to efficiently and effectively ascertain the physical similarities between a property or project that is being sought, and the project or property by which it is being compared to.(Welch,2009) Due to the fact that time is money for many business organizations, this is a major problem when utilizing comparables. A real world example of this type of problem, would be realtors utilizing properties with very similar physical characteristics and total square feet, in order to ascertain the value of another very similar property, but the properties that I used to make the comparison are situated in a manner that provides a much better view, which makes it difficult to utilize them as true comparables.(Chapter 14 Valuations from Comparables and Some Financial Ratios, Welch I. (2009). Corporate Finance: An Introduction. Upper saddle River NJ: Prentice-Hall)

    2) Perfect market assumptions are essentially market assumptions or conditions in which there exists a condition of absolute efficiency within a given market, all market participants have the same ...