What type of capitalization does not take into account cash flows beyond the first year?

The correct choice is based on the concept of direct capitalization, which is a method used in real estate appraisal to determine the value of a property based on the income it generates. Direct capitalization focuses specifically on the income produced in a single year, generally the first year, and applies a capitalization rate to that income to estimate the property’s value.

This approach simplifies the appraisal process by not requiring projections of future cash flows beyond the first year, thereby providing a faster assessment method for valuing properties. It is typically employed in situations where the income is stable and predictable, allowing for a straightforward calculation that serves the assessment needs without delving into more complex multi-year forecasts.

Other capitalization methods take into account future income and cash flows over longer periods. For instance, yield capitalization estimates value based on the present value of future cash flows generated by the property over multiple years. Rent capitalization generally refers to methods that use rental income for valuation, while effective capitalization may involve more comprehensive analyses considering various investment parameters.