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Business Definition for: capitalization rate
capitalization rate
rate of interest used to convert a series of future payments into a single present value .
capitalization rate
rate of interest or discount rate used to convert a series of future payments into a single present value . In real estate, the rate includes annual capital recovery in addition to interest.
capitalization rate
a rate of return used to derive the capital value of an income stream . The formula is
| Value | = | annual income capitalization rate |
Example: The estimated Net Operating Income of an office building is $12,000 per year. An appraiser decides the appropriate capitalization rate is 12%, comprised of a 10% return on investment and 2% for depreciation . The estimated value of the building is $100,000.
Copyright © 2006, 2003, 1998, 1995, 1991, 1987, 1985 by Barron's Educational Series, Inc. Reprinted by arrangement with Publisher.
Copyright © 2007, 2000, 1997, 1987, by Barron's Educational Series, Inc. Reprinted by arrangement with Publisher.
Copyright © 2004, 2000, 1997, 1993, 1987, 1984 by Barron's Educational Series, Inc. Reprinted by arrangement with Publisher.
Copyright © 2007, 2000, 1997, 1987, by Barron's Educational Series, Inc. Reprinted by arrangement with Publisher.
Copyright © 2004, 2000, 1997, 1993, 1987, 1984 by Barron's Educational Series, Inc. Reprinted by arrangement with Publisher.
