What are the three important elements of asset valuation?

 The value of an asset is its intrinsic value or the present value of its expected future cash flows, when these cash flows are discounted back to the present using the investor's required rate of return. This statement is true for valuing all assets, and it serves as the basis of almost all that we do in finance. Thus, value is affected by three elements: 1) The amount and timing of the asset's expected cash flows; 2) The riskiness of these cash flows; 3) The investor's required rate of return for undertaking the investment. The first two factors are characteristics of the asset. The third one, the required rate of return, is the minimum rate of return necessary to attract an investor to purchase or hold a security. This rate of return is determined by the rates of return available on similar investments is called the opportunity cost of funds. This rate must be high enough to compensate the investor for risk perceived in the asset's future cash flows.