NAC361.268. “Discount rate” defined.

“Discount rate” means the annual percentage rate used to select present worth factors. The discount rate is one form of capitalization rate. A discount rate can be derived in two ways:

     1. By use of the band-of-investment method; or

     2. From sales data using the discounted cash flow rate of return method.

Ê The discounted cash flow rate of return method consists of finding the annual rate at which future income must be discounted so that the total present worth equals the proposed investment in the sale price of a property. The present worth of a given year’s income automatically provides for recapture of capital. The difference between the income itself and its present worth provides for the return (yield) on the capital. The term “discount factor” is sometimes erroneously used instead of “discount rate.” Actually, the factors used in discounting are present worth factors.

     [Tax Comm’n, Property Tax Reg. part No. 15, eff. 10-30-79]