Discounted cash flow (DCF)
Values the forecast operating cash flows plus a terminal sale value, all discounted to today.
PV of forecast cash flows + terminal value − debt
The same company viewed through three lenses
Each method answers a different valuation question. The starting values reproduce the FJCL classroom example from Chapter 12, subject to rounding.
Direct capitalization
Capitalizes a stabilized operating cash flow using one market cap rate, then deducts debt.
Stabilized cash flow ÷ cap rate − debt
Net asset value (NAV)
Values the property portfolio and other assets separately, then subtracts liabilities and preferred stock.
Gross asset value − liabilities − preferred stock
Change the assumptions
Move any slider or enter a value. All three estimates, the valuation bars, calculation details, and sensitivity cases update immediately.
Operating outlook
Scale the four-year cash-flow forecast or tilt its growth path.
100% uses the Year 1–4 operating cash flows shown in the slides.
Applied cumulatively after Year 1; it also changes stabilized Year 4 cash flow.
The NAV example uses property NOI, which differs from company operating cash flow.
Market pricing
Required returns and cap rates translate cash flow into value.
Debt and other NAV items
Enterprise or gross asset value becomes equity value after claims are deducted.
Other NAV assets and claims
DCF equity value$1,342.1MFour-year forecast plus terminal value
Cap-rate equity value$1,431.0M6.6% above DCF
Net asset value$1,435.1M
Implied equity value
All values are in millions of dollars. The longest bar is the highest current estimate—not automatically the best method.
The three estimates cluster within 6.9% of DCF in the baseline example. Their similarity is an outcome of the assumptions, not a rule.
Calculation bridge
Each method reaches equity value through a different numerator, market multiple, and deduction.
| Calculation | DCF | Cap rate | NAV |
|---|---|---|---|
| Operating or property value | $2,369.9M | $2,668.8M | $2,713.6M |
| Other assets / income value | — | — | $184.5M |
| Debt / liabilities / preferred | ($1,027.8M) | ($1,237.8M) | ($1,463.0M) |
| Equity value | $1,342.1M | $1,431.0M | $1,435.1M |
Required-return sensitivity
A lower discount or cap rate produces a higher value because the same cash flow is divided by, or discounted at, a smaller required return.
| Approach | Lower required return | Current assumption | Higher required return |
|---|---|---|---|
| DCF | $1,491.6M10.0% discount rate | $1,342.1M11.0% discount rate | $1,204.5M12.0% discount rate |
| Direct capitalization | $1,608.9M7.5% cap rate | $1,431.0M8.0% cap rate | $1,273.4M8.5% cap rate |
| NAV | $1,594.7M8.5% property cap rate | $1,435.1M9.0% property cap rate | $1,292.3M9.5% property cap rate |
What each approach emphasizes
Valuation is not simply choosing the largest result. Analysts compare methods, test assumptions, and explain why the estimates differ.
DCF is dynamicIt reflects a multi-period business plan and management’s effect on acquisitions, developments, dispositions, and operating cash flow.
Direct capitalization is compactIt turns one stabilized cash flow into value quickly, but the estimate is highly dependent on the selected cap rate and stabilized year.
NAV is asset focusedIt values the portfolio and other assets separately. It can miss management value or hidden liabilities not captured in the asset schedule.
Classroom simplification. This model follows the Chapter 12 examples and uses displayed values in thousands of dollars. Minor differences from the slides may arise from rounding. It does not model taxes, share counts, dilution, control premiums, marketability discounts, or every asset and liability item a professional valuation may require.