The Process of Converting Periodic Income into a Value Estimate

question 18

Multiple Choice

The process of converting periodic income into a value estimate is referred to as income capitalization. Income capitalization models can generally be categorized as either direct capitalization models or discounted cash flow models. Which of the following statements best describes the direct capitalization method?

• A) Value estimates are based on a multiple of expected first year net operating income.
• B) Appraisers must make explicit forecasts of the property's net operating income for each year of the expected holding period.
• C) Appraisers must select the appropriate yield at which to discount future cash flows.
• D) The forecast must include the net income produced by a sale of the property at the end of the expected holding period.

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Definitions:

External Search

The process whereby consumers seek out information outside of their personal knowledge base to make informed purchasing decisions, often involving research and comparison.

Public Source

Material or information that is freely available and accessible to the general public.

Point-of-purchase Display

Marketing or advertising materials placed at retail store locations to catch consumer interest and stimulate impulse buying.

Cognitive Dissonance

The mental discomfort experienced by an individual who holds contradictory beliefs, values, or attitudes, especially in relation to behavioral decisions and attitude change.