1. The Student Handbook to T HE A PPRAISAL OF R EAL E STATE 1 Chapter 23 Yield Capitalization — Theory and Basic Applications

2. Student Handbook to T HE A PPRAISAL OF R EAL E STATE Chapter 23 2 Modern computers allow appraisers to easily discount future cash flows to present value. In the past this process was difficult. Any investment can be considered the present worth of future benefits. A dollar today will grow to $X over a period of time, and $X to be received in the future is worth a dollar today if discounted at the same rate.

3. Student Handbook to T HE A PPRAISAL OF R EAL E STATE Chapter 23 3 Discounting is the process in which future cash flows are converted into present value. Discounting requires many calculations that are tedious for any human, but easy for many modern computers. The sum of the present values of the future cash flows is the present value of the investment. This includes periodic cash flows and the reversion.

4. Student Handbook to T HE A PPRAISAL OF R EAL E STATE Chapter 23 4 The time value of money is represented in the “six functions of a dollar” tables.  These tables show how the value of a dollar can be impacted with compound interest.  They reflect the impact on the dollar from interest on interest.  There are six tables to follow. Each one shows a different impact of compound interest.

5. Student Handbook to T HE A PPRAISAL OF R EAL E STATE Chapter 23 5 What will $1 today grow to with compound interest?

6. Student Handbook to T HE A PPRAISAL OF R EAL E STATE Chapter 23 6 Table 23.2 Present Value of $1 What is $1 in the future worth today?

7. Student Handbook to T HE A PPRAISAL OF R EAL E STATE Chapter 23 7 Table 23.3 Discounted Cash Flow—Level Annuity What is $1 per period worth today ($100,000 per period and $1,000,000 at the end @10%)?

8. Student Handbook to T HE A PPRAISAL OF R EAL E STATE Chapter 23 8 Table 23.4 Investment Analysis of Drugstore

9. Student Handbook to T HE A PPRAISAL OF R EAL E STATE Chapter 23 9 Table 23.5 Straight-Line Change

10. Student Handbook to T HE A PPRAISAL OF R EAL E STATE Chapter 23 10 Table 23.6 Exponential-Curve Change

11. Student Handbook to T HE A PPRAISAL OF R EAL E STATE Chapter 23 11 Table 23.7 Level Income in Perpetuity

12. Student Handbook to T HE A PPRAISAL OF R EAL E STATE Chapter 23 12 Table 23.8 Analysis of Property with Level Income and Change in Value

13. Student Handbook to T HE A PPRAISAL OF R EAL E STATE Chapter 23 13 Table 23.9 Constant Change in Income and Value

14. Student Handbook to T HE A PPRAISAL OF R EAL E STATE Chapter 23 14 Table 23.10 Constant-Ratio Change in Income and Value

15. Student Handbook to T HE A PPRAISAL OF R EAL E STATE Chapter 23 15 Table 23.11 Constant-Ratio Change in Income and Value

16. Student Handbook to T HE A PPRAISAL OF R EAL E STATE Chapter 23 16 Problems Suggested solutions begin on page 365.

17. Student Handbook to T HE A PPRAISAL OF R EAL E STATE Chapter 23 17 Problem 1D

18. Student Handbook to T HE A PPRAISAL OF R EAL E STATE Chapter 23 18 Problem 2B

19. Student Handbook to T HE A PPRAISAL OF R EAL E STATE Chapter 23 19 Problem 3B

20. Student Handbook to T HE A PPRAISAL OF R EAL E STATE Chapter 23 20 Problem 4B

21. Student Handbook to T HE A PPRAISAL OF R EAL E STATE Chapter 23 21 Problem 5B

22. Student Handbook to T HE A PPRAISAL OF R EAL E STATE Chapter 23 22 Problem 6C

23. Student Handbook to T HE A PPRAISAL OF R EAL E STATE Chapter 23 23 Problem 7A

24. Student Handbook to T HE A PPRAISAL OF R EAL E STATE Chapter 23 24 Problem 8B

25. Student Handbook to T HE A PPRAISAL OF R EAL E STATE Chapter 23 25 Problem 9C