Income approach method

mathematical formulas

Income approach method

Income approach method

It is the method for estimating the value indicator that considers the income and expense data related to the property being valued, and estimates the value through the capitalization process. Capitalization relates income and a defined type of value, converting an amount of future income into an estimate of present value.This process may consider direct capitalization (where a global capitalization rate or all risks surrendered are applied to a single year's income), or cash flow capitalization (where return or discount rates are applied to a series of income in a projected period). The income approach reflects the principles of Anticipation, Supply and Demand, Homogeneity or Conformity, Change, Progression and Regression, Growth, Equilibrium and Decline, Competition and Highest and Best Use.

Σ represents the sum of all periods. Income stream is the expected net income for the period. Capitalization rate is the discount rate. n is the number of periods in the future

Fabio Nelson Revelo Arevalo

Group: 212032_173

How can companies create value from their innovation?

Processes related Income approach method

1. Identify the asset to be valued: Clearly define what asset (property, business, etc.) you are going to value. 2. Determine income streams: Calculate the income streams that the asset is expected to generate in the future. 3. Establish the capitalization rate: this is the factor applied to income streams to determine the present value of the asset. 4. Calculate the net present value (NPV): Once you have the projected income streams and the capitalization rate, you can calculate the net present value by adding the present value of all future income streams. 5. Consider residual value: Some assets may have a residual value at the end of their useful life. 6. Make adjustments and sensitivities: It is important to make adjustments and sensitivities to your projections and the capitalization rate to evaluate how different scenarios may affect the value of the asset. 7. Assess risk: Consider the risks associated with the asset and adjust the capitalization rate accordingly. 8. Obtain final value: Add the net present value of future income streams with the residual value and any other relevant values to obtain the final value of the asset.

Nelson Augusto Jimenez Tutor

Technological innovation allows companies to create completely new products and services that revolutionize the industry or meet market needs in an innovative way, increasing efficiency and reducing operating costs. Likewise, innovation seeks to develop technological platforms that connect different interested parties, such as clients, suppliers, partners and application developers, allowing more agile management and a faster response to market demands. In conclusion, innovation and technology can be drivers of business value creation by driving growth, efficiency, differentiation and customer satisfaction.

Universidad Nacional abierta y a distancia-UNAD Valuation and Negotiation of Technology Marzo, 2024