Methods and Evaluation Methodology

Market Style

This method provides indicators of value by comparing the asset being assessed with identical or similar assets whose price information is available.
In this way, the first step is to study transaction prices for identical or similar assets that have recently occurred in the market. If the transactions that have been made are few, it is also best to study the prices of the corresponding or similar assets listed or offered for sale, provided that such information is clear and objectively analyzed. Information about the prices of such transactions must be adjusted to reflect differences in the terms and conditions of the actual transaction and the basis for the value and assumptions adopted in the valuation process being carried out. There may also be differences in the legal, economic and material characteristics of the assets of other transactions as compared to the asset being valued.
* Source: International Evaluation Standards 2017

Income Method

The income method provides an indication of value by converting future cash flows into one current capital value. This method deals with the income achieved by the asset during its productive life (the life span of the asset) and the value is estimated through capitalization. Capitalization means to convert income into capital amount using an appropriate discount rate. Income flows are accounted for under non-contractual contracts or arrangements, such as the expected profit from using or retaining the asset.
Methods that fall within the income method include:
1) Capitalization of income by applying a risk factor or gross capitalization over one ordinary income period.
2) The present value of the cash flows where the discount rate is applied to a series of cash flows for future periods to arrive at the present value.
3) Pricing models with different options.
* Source: International Evaluation Standards 2017

Cost Method

The Cost Method provides indicators of value using the economic principle that the buyer does not pay for the purchase of an asset more than the cost of obtaining an asset of the same benefit, either through purchase or construction and is based on the principle that the price paid by the buyer in the market against the original subject of assessment will be no more than the cost of purchasing or establishing an equivalent asset unless there are factors, such as inappropriate timing, inconvenience, risk or other factors. Often, the subject of assessment is less attractive than the alternative that can be bought or constructed because of the age or obsolescence of the asset. In such case, the adjustments and amendments to the cost of the alternative asset would be required on the basis of the required value.
* Source: International Evaluation Standards 2017