What does Fair Market Value (FMV) represent?

Fair Market Value (FMV) represents the worth of a product or company in a marketplace under normal conditions. This definition is based on the principle that FMV is determined by the price that a willing buyer and a willing seller would agree upon, assuming that both parties have reasonable knowledge of relevant facts and are acting in their own best interests.

FMV is an important concept because it helps establish a standard value that can be used in various financial transactions, legal matters, and compensation planning. It is particularly relevant for valuation purposes, mergers and acquisitions, and compliance with regulations.

The other options do not accurately capture the essence of FMV. For instance, the established price for new product launches might fluctuate greatly and does not reflect an agreed-upon market value over time. The average cost of manufacturing a product focuses on production costs rather than market perceptions, while the final price a consumer pays after taxes includes additional factors beyond just the intrinsic worth of the product itself, such as government regulations and retail markups.