A Practical Tool to Assist in Analyzing Risk Associated with Income Capitalization Approach Valuation Or Investment Analysis (Features; Excel Model‪)‬

abstract Appraisers often apply the discounted cash flow (DCF) model when performing an appraisal or investment analysis using the income capitalization approach. Use of DCF requires an appraiser to forecast future periodic cash flows and terminal value. It often provides the best estimate of the market value (MV) of a project, but normally does not provide an estimate of risk associated with the appraiser's forecast. Developing an actual measurement of risk, i.e., an estimate of the standard deviation of a forecasted variable, is time consuming and difficult. This paper presents a simple Excel model that provides a measure of the standard deviation of a forecasted value.