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The increasing complexity of investment properties has necessitated the application of more advanced valuation and analysis techniques. Following the property cycle of the 1980s/1990s, and the recommendations of several reporters, the DCF method has been promoted in Australia for certain income‐producing properties. The Australian Property Institute disseminated an information paper in 1993 that discussed DCF and suggested a performance approach to its application. Following this, a practice standard was produced in 1996 that was highly prescriptive but which contained a number of confusing passages. With the benefit of hindsight, its publication was premature and it was withdrawn from circulation. A rewrite was commissioned and an exposure draft was circulated in early 1999. It has been prepared as a performance standard in which the valuer is called on to follow a method while disclosing the specifics. However, a number of considerations remain to be finalised, for example, the application of the term cash flow to net operating income, income after finance and income after finance and tax. The preparation of standards is an evolutionary process and the present coverage of the DCF practice standard reflects the market in which it applies.

This research paper has two objectives. The first is to shed light on the consistency in and quality of the applied valuation models. The second objective is to analyse uniformity on important valuation input variables throughout 1994‐2002.

More than 150 original valuation reports are retrieved and qualitatively checked on model consistency, for example on discounting methods. The impact of the inconsistencies on the end value were calculated by using a dummy discounted cash flow model (DCF). The uniformity of the input variables net yield, discount rate and exit yield are quantitatively determined: is there a decreasing standard deviation through time?

There appears to be little consistency: the Dutch appraisers use a variety of methods within the DCF method. Cash flows are discounted quarterly in advance, yearly in arrear and averaged over the year, only three of the ten most frequent used appraisers use a flexible inflation scenario, etc. These different approaches can have a large impact on the appraisal value. As for the uniformity, the standard deviation for all three variables has not decreased through time.

The conclusions and recommendations of this research have been used by the valuation committee of the ROZ/IPD Netherlands Property Index to improve and extend the valuation guidelines.

Valuation models, which are the foundation of benchmarks, have never been researched on a large scale due to confidential issues. This research appears to be the first to actually analyse valuation models of many different appraisal companies in one country, The Netherlands. The participants of the ROZ/IPD Netherlands Property Index own 85 per cent of the €38 billion institutionally invested value in real estate in The Netherlands. Their policy decisions are partially based on the comparison to the Dutch benchmark. Therefore consistency and uniformity of the valuation models is critical.

The Australian Institute of Valuers and Land Economists Incorporated introduced a mandatory discounted cash flow practice standard on 1 September 1996. Reviews the new standard, highlighting the strengths and weaknesses. Offers early constructive commentary for the refinement of the standard at its 12‐month review. As no such mandatory “practice standard” has yet emerged from the US Appraisal Institute or the UK Royal Institution of Chartered Surveyors, it is reasonable to assume that these bodies as well as their membership will view the Australian initiative with interest.

Discounted cash flow (DCF), whether by capitalisation or by cash flow analysis, has many detractors because of a number of apparent problems such as the reinvestment assumption and the possibility of multiple rates of return. The capital recovery cum reinvestment aspects of Years' Purchase (YP) factors and DCF are discussed and it is demonstrated that Years' Purchase single rate principle is akin to Internal Rate of Return (IRR) and that Years' Purchase dual rate principle also has a DCF image known as the Modified Internal Rate of Return (MIRR). The difference between the YP models and the DCF models is to do with the level cash flows assumed in the former and the variability of the cash flows measured in the latter. MIRR was developed as an answer to the above problems and it is demonstrated in a case study in which the fallacy of the apparent problems is also demonstrated. MIRR has a place in the analysis of investment strategy, but IRR (equated yield) is shown to be satisfactory in the financial analysis and comparison of individual projects.

The purpose of this paper is to establish the flow-to-equity method, the free cash flow (FCF) method, the adjusted present value method and the relationships between these methods when the FCF appears as an annuity. More specifically, we depart from the two most widely used evaluation settings. The first setting is that of Modigliani and Miller who based their analysis on a stationary FCF. The second setting is that of Miles and Ezzell who worked with an FCF that represents an autoregressive possess of first order.

Inspired by recent observations in the literature concerning cash flows, discount rates and values in discounted cash flow (DCF) methods, we mathematically derive DCF valuation formulas for annuities.

The following relationships are established: (a) the correct discount rate of the tax shield when the free cash flow takes the form of a first-order autoregressive annuity, (b) the direct valuation of the tax shield from the free cash flow for a first-order autoregressive annuity, (c) the correct translation from the required return on unlevered equity to the levered equity, when the free cash flow is a stationary annuity and (d) direct calculation of the unlevered and levered firm values and the value of the tax shield for a stationary annuity.

Until now the complete set of formulas for the valuation of stochastic annuities by different DCF methods has not been established in the literature. These formulas are developed here. These formulas are important for practitioners and academics when it comes to the valuation of cash flows of finite lifetime.

There are three approaches to valuation: cost, market and income. As a subset to the income approach, the investment method looks at the pricing of assets that produce income over an investment holding period. The discounted cash flow (DCF) technique or model can be developed to look at the cash flows on a quarterly basis to reflect the actual receipt of the cash flows. The aim of this paper is to give an overview of the DCF quarterly model.

This education briefing is an overview of the DCF quarterly model.

The DCF quarterly model can be seen to produce estimates of market value.

As the use of DCF is developed and expanded, it is useful to be able to model the cash flows appropriately.

This is a review of existing models.

The aim of this paper is to use rent and price dynamics in the future cash flows in order to improve real estate portfolio valuation.

Monte Carlo simulation methods are employed for the measurement of complex cash generating assets such as real estate assets return distribution. Important simulation inputs, such as the physical real estate price volatility estimator, are provided by results on real estate indices for Paris, derived in an article by Baroni et al..

Based on a residential real estate portfolio example, simulated cash flows: provide more robust valuations than traditional DCF valuations; permit the user to estimate the portfolio's price distribution for any time horizon; and permit easy values‐at‐risk (VaR) computations.

The terminal value estimation is a core issue in real estate valuation. To estimate it, the proposed method is not based on an anticipated growth rate of cash flows but on the estimation of the trend and the volatility of real estate prices.

Surveys of capital budgeting practices in the UK and USA reveal a trend towards the increased use of more sophisticated investment appraisals requiring the application of discounted cash flow (DCF) techniques. Several writers, however, have claimed that companies are underinvesting because they misapply or misinterpret DCF techniques. Such claims have been made on the basis of observations in only a few companies, or anecdotal evidence, without any supporting statistical evidence. Reports on a recent survey conducted by the authors which suggests that many UK firms are guilty of misapplying DCF techniques. Also provides evidence relating to some issues that have not been thoroughly examined in previous studies, namely the impact of company size and the relative importance that firms attach to different investment appraisal techniques.

The question that inevitably surfaces in practice, and certainly in lecture halls, is which equity valuation method is superior. Popular opinion holds that academia and investment practitioners may have different preferences in this regard. This article investigates which primary minority and majority equity valuation methods are advocated by academia, and how well these preferences are aligned with the equity valuation methods that investment practitioners apply in practice. The research results reveal that, contrary to popular belief, academia and practice are fairly well aligned in terms of preferred equity valuation methods, with notable differences in their respective approaches.

There are three approaches to valuation: cost, market and income. As a subset to the income approach, the investment method looks at the pricing of assets that produce income over an investment holding period. The discounted cash flow (DCF) technique or model can be developed to look at the cash flows on a quarterly basis to reflect the actual receipt of the cash flows. This Education Briefing is a overview of the DCF quarterly model and the need to analyse comparables appropriately. The paper aims to discuss these issue.

The DCF quarterly model can be seen to produce estimates of market value.

As the use of DCF is developed and expanded, it is useful to be able to model the cash flows appropriately.

The old adage “value as you analyse” applies to DCF valuations. If valuing quarterly, then the analysis needs to be done on the same basis.

This briefing is an overview of the pricing of freehold rack rented properties in the UK.