How can a discount be built into a capitalization/discount rate?

Consider the function of the rate on the value of the company. Also think about what rate represents, the rate of return an investor would seek.

Make your best argument

To be sure, do not confuse the discount (DLOM) associated with the cap rate. The additive build-up method (BUM) is based on premiums or discounts. Think of how the cap rate can be increased to include a built-in discount. The higher the rate, the lower the value, the function of a discount.

Answer rating: 100% (QA)

Discount and capitalization rates are needed for estimating the value of businesses Both rates are used to convert income measures into value and are particularly useful for valuing closely held corpo... View the full answer