Capitalization Rates, Discount Rates and Reasonableness

August 1996, Vol 21, No 2
Abstract: It has become increasingly popular for purchasers of valuation services to require both a direct capitalization analysis and a discounted cash flow analysis. As with other approaches to value, these two are basically alternative ways to view the market’s approach to pricing, and performed correctly they should replicate each other. This article presents the methodology for testing the reasonableness of the two assumptions.