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Dear tutor
Would you please explain what is the relationship between the 3 levels and the 3 valuation techniques? I know we have to first select level 1, then level 2 and then go to level 3.
But I can not understand its relation to those three techniques (market approach, cost approach, income based). Are they the same as those 3 levels? I mean is this correct to say:
level 1 = market approach
level 2 = cost approach
level 3 = income approachThank you
Hi,
You’re correct in that level one uses market values of the asset/liability if it is quoted on an active market. Level 2 is where we use a similar asset/liability that is quoted on an active market. Level 3 uses unobservable inputs, whereby there is no active market and so we use discounted cash flow techniques or similar.
Thanks
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