Property Valuation
In South Dakota, 'capitalization rate' and 'discount rate' are related but different. The cap rate is used for:
AProjecting future income streams
BDirect capitalization (one year's NOI ÷ cap rate = value)✓ Correct
CDiscounting future cash flows to present value
DCalculating depreciation in the cost approach
Explanation
The cap rate is used in direct capitalization: Value = NOI ÷ Cap Rate. The discount rate is used in yield capitalization (DCF) to convert all future cash flows to present value. They measure related but different aspects of value.
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