If the cash flows of the firm are not expected to grow or are expected to grow at a constant rate indefinitely, the discount rate used by practitioners often is referred to as the capitalization rate.

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Quizplus · Accepted Answer

This is true. The capitalization rate is used to convert expected future cash flows into a present value estimate, assuming that these cash flows will remain constant in perpetuity. It is often used in valuation methods such as the dividend discount model or the discounted cash flow model, where future cash flows are discounted back to their present value using a constant discount rate.

If the Cash Flows of the Firm Are Not Expected