The Transactional Assets Pricing Approach and Income Capitalization Models in Professional Valuation: Towards a “Quick” Income Capitalization Format

Open access


The transactional assets pricing approach within valuation theory (TAPA) reviewed in this paper and developed by the authors, now more than a decade ago (MICHALETZ, ARTEMENKOV A. & ARTEMENKOV L., (2007), has found many applications in professional valuation practices dealing with illiquid assets (Leyfer 2006; Andrews 2011)). Consequently, challenges have arisen to ascertain its performance and develop tools, on its basis, which can be employed by valuers in their everyday practice and which are aligned as much as possible with the income approach tools used by them in their professional work. This paper proposes modifications to the standard direct income capitalization technique to align it as closely as possible with the results derivable under the applications of the TAPA basic pricing formula. The authors develop the respective adjustments using the Taylor series expansion and then, using a simulation technique, outline the performance of the resulting modified (“quick”) income capitalization model against the TAPA benchmark. The findings indicate that such a modified (“quick”) income capitalization approach has reasonable accuracy, which makes it amenable to direct usage in valuation practice, given the described assumptions.

Artemenkov A., Mikerin G. 2007, On the Distinctions Between the Perspectives of the Investment-Financial and Professional Valuations, Voprosi Ocenki Quarterly #2, 2007 (published by the Russian Society of Appraisers, pp. 27-39.

Artemenkov A. 2017, Professional Valuation as a Field within Economic Measurements: Its Bases of Valuation and Other International Standardization Challenges (September 21, 2017), Working Paper, Available at SSRN:

Andrews D., 2011, Actuarial Methods for Valuing Illiquid assets, SOA Joint Risk Management Section publication, Society of Actuaries, 2011

Cichulska A., Wisniewski R., 2017, Issue of the Risk in Literature, Real Estate Management and Valuation, vol. 25, no. 3, pp. 74-86.

Damodaran A., 2002. Investment Valuation: Tools and Techniques for Determining the Value of Any Aassets 2ed, John Wiley& Sons, (the whole book is also available for free as e-text at:

Dempsey M., 1996, Corporate Financial Management: Time to Change the Cost of Capital Paradigm?, Critical Perspectives on Accounting: Vol. 7, No. 6, pp. 617-63.

Ekern S. 2006, A Dozen Consistent CAPM-Related Valuation Models - So Why Use an Incorrect One? (November 29, 2006), NHH Finance & Management Science Discussion Paper, No. 6/2006 Available at SSRN:

Jensen M., 1972, The Foundations and Current State of Capital Market Theory, Harvard Business School

Fisher I., 1930, The Theory of Interest: As Determined by Impatience to Spend Income and Opportunity to Invest It, New York: Macmillan.

Friedman J., Ordway N., 1989, Income Property Appraisal and Analysis, New York: Prentice Hall.

Galasyuk V., Soroka M., 2002, Anthropological Approach to Determining Discount Rates (The GAD Concept as the Corollary of the CCF Concept), Галасюк Валерий, Сорока Мария, Галасюк Виктор Антропологический подход к определению ставки дисконтирования (GAD-концепция как следствие концепции CCF)//Государственный информационный бюллетень о приватизации.-2002.-№11.-С.57-60. (also available at :

Galasyuk V., Soroka M., 2002, The Notion of Economic Risk within the Conventionality Cash Flows Concept, (Галасюк Валерий, Сорока Мария, Галасюк Виктор, Понятие экономического риска в контексте концепции CCF//Вестник бухгалтера и аудитора Украины.-2002.-№15-16.-C.26-34.) (also available at:

Galasyuk V.V., 2016, Establishing Fair Value of Objects in Barter, Donation and Exchange Transactions, Art-Press, Dnepr 2016.

Garvey G. T., 2001, What is an Acceptable Rate of Return for an Undiversified Investor?, Working Paper (September), Available at SSRN:

Leyfer L., 2006, On the Direct Capitalization Methodology and Generalized Inwood Model, Voprosi Ocenki Quarterly (published by the Russian Society of Appraisers), №3, 2006. p. 47-59 (also available at

Leyfer L., Dubovkin A., 2003, Applicability of CAPM for Determining Discount Rates on Russian Investment Markets, stable URL

Lintner J., 1965, Security Prices, Risk, and Maximal Gains From Diversification, The Journal of Finance, Vol. 20, No. 4, pp. 587-615. Stable URL:

Mercer C., 2004, The Integrated Theory of Business Valuation: Valuing Shareholder Cashflows, Peabody publishing, Memphis (ch.7).

Michaletz V., 2002, Discount Rate in Valuation Practice, Voprosi Ocenki Quarterly (published by the Russian Society of Appraisers, №3, p.35.-42.

Michaletz V., 2005, Discount Rates and Income Approach Methodologies, Voprosi Ocenki Quarterly (published by the Russian Society of Appraisers, №1, 2005, p. 3-19.

Michaletz V., 2005. The Principles of Portfolio Averaging in Market Valuations, Voprosi Ocenki Quarterly №4, p.53-59 (published by the Russian Society of Appraisers

Michaletz V., Artemenkov A., Artemenkov I., 2007, Income Approach and Discount Rates for Valuing Income-Producing Illiquid Assets - Outlines of New Framework: Revisiting the Concepts in Income Approach and Developing the Model of Illiquid Assets Transactional Pricing, Icfai Journal of Applied Finance, December, Proceedings of the Icfai University and the University of Philadelphia V International Conference on Business and Finance, Hyderabad (India), Available at SSRN:

Michaletz V., Artemenkov A., 2008, Discounted Cash Flows Analysis and the Discounting Procedure in Market Valuations - How We Understand Them: A Brief Conceptual Note for Professional Valuers, January Available at SSRN: or

Miller M.H., Modigliani F., 1961, Dividend Policy, Growth and the Valuation of Shares, The Journal of Business, Vol. 34, pp. 411-433.

Muczyński A., 2015, An Integrated Approach to Real Estate (Portfolio) Management, Real Estate Management and Valuation, Vol. 23, No. 2, pp. 5-16.

Pratt S., Reilly R., Schweihs R., 2000, Valuing a Business: Valuation of Closely-held Companies, Textbook (4th edition); New York: McGraw-hill.

Rubenstein M., 2003, Great Moments in Financial Economics: 1 Present Value; in the The Journal of Investment Management (1 Quarter 2003), (also available at: www. in-the-money. com/pages/author.htm).

Sayce S., Smith J. et al., 2006, Real Estate Appraisal: from Value to Worth, Blackwell publishing, Oxford.

Slee R., 2004, Private Capital Markets: Valuation, Capitalization, and Transfer of Private Business Interests, Hoboken: John Wiley & Sons.

Slutksy A., 2016, Long-term Trends on the Commercial Property Market of Moscow: Ex-post Analysis, RWAY Bulletin, #251 (February), pp. 140-152.

Sharpe W., 1964, Capital Assets Prices: The Theory of Equilibrium under Conditions of Risk, The Journal of Finance, Vol. 19, No. 3, pp. 425-442.

Traynor J., 1962, Toward a Theory of Market Value of Risky Assets, Unpublished manuscript (available at:

Institutional Work (1989), “The Appraisal of Real Estate”, The Appraisal Institute Students’ Bound Volume, tenth edition, 1989, p. 422.

IVSC (2017), The International Valuation Standards 2017 (also available at:

TEGoVA (2016), The European Valuation Standards 2016 (TEGoVA—available at

Real Estate Management and Valuation

The Journal of Towarzystwo Naukowe Nieruchomosci

Journal Information

CiteScore 2017: 0.19

SCImago Journal Rank (SJR) 2017: 0.140
Source Normalized Impact per Paper (SNIP) 2017: 0.363


All Time Past Year Past 30 Days
Abstract Views 0 0 0
Full Text Views 480 480 25
PDF Downloads 258 258 10