Even in business valuation world, some people describe a discount rate and a capitalization rate as separate concepts; others use the terms interchangeably. I would just say that both concepts are the result of the build-up method in valuation.
That means a valuation professional uses a variety of factors (hard numbers as well as judgment calls based on industry research) to build up a variety of numbers and reach a critical piece of information: whether it’s smarter for a potential buyer to sock her funds in this business or simply invest the money elsewhere.
In the context of business valuation, a discount rate gives that answer before certain tax, cost-of-capital, and cash-flow adjustments are made. The capitalization rate is the final measurement that comes after those final adjustments.
