Which statement about investment value is true?

Which statement about investment value is true?

• A. Market value reflects the price to sell in an open market.
• B. Investment value reflects the value to a specific investor based on its cash flows and risk.
• C. Investment value equals replacement cost.
• D. Investment value is the same as market value for all buyers.

Answer: (B)

Investment value is the value to a particular investor based on that investor’s expected cash flows and the risk of those cash flows. Because an individual buyer may have different financing terms, tax implications, holding period, and required return, the same property can be worth more to one investor and less to another. This investor-specific assessment is why investment value can diverge from the market price. Market value, by contrast, reflects the price at which a property would sell in an open market with many buyers and sellers, not tailored to any one buyer’s objectives. Replacement cost is a separate concept that looks at what it would cost to recreate the property, not the value to a specific investor. And investment value is not the same as market value for all buyers, since it depends on each investor’s unique circumstances and expectations.

Investment value is the value to a particular investor based on that investor’s expected cash flows and the risk of those cash flows. Because an individual buyer may have different financing terms, tax implications, holding period, and required return, the same property can be worth more to one investor and less to another. This investor-specific assessment is why investment value can diverge from the market price.

Market value, by contrast, reflects the price at which a property would sell in an open market with many buyers and sellers, not tailored to any one buyer’s objectives. Replacement cost is a separate concept that looks at what it would cost to recreate the property, not the value to a specific investor. And investment value is not the same as market value for all buyers, since it depends on each investor’s unique circumstances and expectations.