Valuation Models : A Practical Appraisal

There are three well-known, generally accepted vessel pricing methods: The Market Comparable Method, known as ‘marked to the market’ approach or frequently referred to as ‘last done’in shipping. In a simplified way, Karatzas (2009) describes it as: ‘What someone paid recently for a similar asset is a representative way of assessing the price as long as assets as fairly marketable and there is a liquid market.’The Income Valuation Method, known as ‘marked to the model’ equates the vessel’s value with the present value of the stream of FOpCF (free operating cash flow) generating process. The Replacement Cost Method, known as ‘marked to the cost’, equates the vessel’s value with the estimated required cost to replace the vessel. The last method is usually utilized when methods 1 and 2 cannot be applied, either because there is not enough liquidity in the vessel’s market (method 1,) and/ or there are difficulties to estimate the cash flow generating process (method 2.)