What method is used for estimating present values of income streams by applying a present-value factor?

The method used for estimating present values of income streams by applying a present-value factor is the discounted cash flow method. This approach involves projecting future income streams and then discounting them back to their present value using a specific discount rate. It takes into account the time value of money, acknowledging that a dollar received in the future is worth less than a dollar received today due to factors like inflation and opportunity cost.

In the discounted cash flow method, each cash flow is determined for specific time periods, and then these cash flows are discounted back using a formula to derive a present value that reflects the potential future income. This technique is particularly useful for valuing investments and properties where the income is expected to vary over time, providing a more comprehensive analysis than simpler methods.

Capitalization rate, direct capitalization, and income approach also relate to income estimation but do not inherently focus on applying a present-value factor as a systematic approach like discounted cash flow does. Instead, these methods may rely on different calculations or assessments of value, making discounted cash flow the most precise choice for estimating present values.