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141 appropriate rate. A determination of the proper capitalization rate presents one of the most difficult problems in valuation. Capitalization rates of 15% to 20% are mentioned in Revenue Ruling 68‐609
for reference purposes only, although many valuators use these figures as guidelines that they must follow in the application of the various methods under the Income Approach.
In reality, and the approach that this valuator follows is to develop discount and capitalization rates that are consistent with the rate of return a prudent investor would require when considering an investment of the subject company’s nature. The selected
required rate of return,
or discount rate, has been developed for this valuation by reference to a variety of capital
market rates and yields, and based upon the buildup method widely used by the appraisal industry. This concept is briefly discussed in the paragraphs that follow.
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