Understanding Capitalization Rate

Some common approaches to valuing a business as a going concern involve determining a good measure of earning power and capitalizing it. This determines the value of the business to an investor based on the future returns he or she can reasonably expect. A Capitalization Rate, commonly referred to as a Cap Rate, serves as the basic metric to value a Real Estate deal. It is the yearly rate of return expected on an all cash investment in a real estate property.

For example