Socio-Economic Models

Direct extension of Gordon formula in case of irregular cash flow

A. G. Perevozchikov^a, A. I. Lesik<sup>b

a</sup> Tver Institute of Ecology and Law, Tver
^b Tver State University, Tver

Abstract: We consider previously proposed deterministic prediction model of net operating income's (NOI) rates of change depending on expected rates of change of property value. The numerical experiments revealed it's insufficient stability and weak dependence of the forecast from the initial value of multiplier P/E (price/profit). Therefore in current research we propose another modified prediction model, which can be interpreted as direct extension of Gordon formula in case of unstable cash flow. The numerical experiments revealed sufficient stability of proposed modified prediction model. Thus the modified model corrects the deficiencies of basic model.

Keywords: property estimate, market value, income approach, the method of profit's discounting, discount rate, capitalization rate, Gordon formula, net operational income (NOI), the rate of change of property value, NOI's rate of change.

UDC: 519.86

Received: 13.05.2010
Revised: 20.06.2011

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