What is the procedure called that converts expected future benefits into present value?

The procedure that converts expected future benefits into present value is known as capitalization. This concept is central to the field of appraisals and real estate valuation, as it provides a method for deriving the present worth of future cash flows that an asset is expected to generate.

In capitalizing income, appraisers use a capitalization rate applied to the anticipated future income—this transforms the expected income into a present value estimation. This approach is particularly useful when evaluating income-producing properties, as it provides an intuitive understanding of what future earnings denote in terms of today's dollar value. By assessing the risks and time factors associated with these future income streams, capitalization gives a more manageable figure that can be used for further decision-making regarding the asset's value.

This procedure is distinct from residual analysis, which typically involves calculating the value of a property after deducting all costs associated with its development. Market capitalization generally refers to the total market value of a company's outstanding shares of stock, and equity capitalization pertains to the capitalization of equity investments specifically. While related concepts, they do not directly address the conversion of future benefits into present value in the same way that capitalization does.