Instructions: Compare and contrast the terms contract and economic rents. Explain the concept of discounted cash...


  1. Compare and contrast the terms contract and economic rents.
  2. Explain the concept of discounted cash flow valuation and income capitalization rates.
  3. Using the internet, try to find at least five commercial properties for sale that would usually be valued with a very heavy weight for the income approach. Determine what type of information on income and expenses is provided. Can you find a web site with sufficient information to use the income related valuation techniques? If so, what is the site’s url?

Homework Answers

Answer #1

contract and Economic rents

Payment made to the factor owner by the renter according to the mutual agreement. It is part of the contract rent paid to the factor owner for the use of the factor.

Discounted cash flow

considers future cash flows for each year of the anticipated holding period; in addition to cash expected from the sale of property at the end of the holding period to discount it at the present value. It captures anticipated change in net income over time.

Income capitalization rates

Net operating rate using the selling price, and, the rate of return known as the capitalization rate

Income-based valuation method

There are two approaches that are used for valuing a business - Discounted Cash Flow Method, and, Capitalization of Cash Flow Method. The firms are valued on the basis of the income the firm is expected to generate in the future.

Price or Capital Value = Rent / Yield

5 properties

  • Office Block in Central Bristol
  • Retail hypermarket space in emerging economies
  • Premium real estate in cities with increasing incomes, and, an improving standard of living
  • Special Economic Zones
  • Office space with unique features supported by the Government, in cities that the Governments are keen on developing

Link for information

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