Capitalization and discounting of benefits are two methods of valuation related in that they are both parts on the income approach to valuation. However, one is more appropriate than the other under certain circumstances. Typically, the capitalization of benefits is considered appropriate when you have an expected constant growth rate in the benefit stream and a linear relationship between the rate of return and the benefit stream. Alternatively, the discounting of benefits is typically used where there is a period of accelerated or erratic growth that cannot be captured in a single-period number. However, there are certain situations or jurisdictions where discounting may not be allowed.
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