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Isaac Chan
19 Mar 2019
Business at NUS
You can most likely apply the standard valuation methods to value an apple tree, such as intrinsic and relative valuation.
For intrinsic, you can look at the estimated amount of free cashflows that this tree produces which is availible to the claimants of the tree, such as anyone who could have lent money for the tree to be planted and the actual owners of the tree. You would then discount this cashflow to today's value based on the opportunity cost associated with the risk of investing in this tree. For example, is there interest on the debt you have taken on to plant the tree? Or what is the opportunity cost if you actually invested in other fruit trees instead?
Relative valuation is actually much simpler. You basically take metrics from how other fruit trees are valued, and apply them to this apple tree. Some interesting metrics for an apple free could be "Enterprise Value / Apples Produce", "Enterprise Value / Size of Tree", "Enterprise Value / Juiciness of the Apple". You can get especially creative here but the main gist is that the metric should correlate as strong as possible to the value of the tree. So for example, the metric I mention simply assume that the more apples a tree produces, the more valuable it is.
Precendent transactions is also another form of valuation. It's just a fancy term for comparing the target you are trying to value with what others actually paid for it. For example, someone most likely could have bought an apple tree before. Maybe you can compare the valuation of your target tree to how much the other guy bought his tree for?
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Ok, my friend actually got this as an interview qn. **I dont think there is a model answer per-se, b...
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