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Article: Sensitivity of the FMRR technique in a fluctuating market. (financial management rate of return)
- Article from:
- Appraisal Journal
- Article date:
- April 1, 1997
- Author:
CopyrightCOPYRIGHT 1997 The Appraisal Institute. This material is published under license from the publisher through the Gale Group, Farmington Hills, Michigan. All inquiries regarding rights should be directed to the Gale Group. (Hide copyright information)
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Imagine that a survey asked respondents to assume that an investment firm has requested an analysis of the value of a certain property using rates of return. Because of the real estate market's volatility at the time of this survey, an appraiser must take into consideration the fluctuating market when developing assumptions for the valuation techniques to be used. In addition, he or she must decide which method best produces an accurate estimate of the property's value. Before the widespread use of computer spreadsheets and advanced calculators, the model for valuation would have been the direct capitalization approach as opposed to the discounted cash flow (DCF) techniques. ...