Question

which descriptor relates to the income approach for valuing corporations?

• multiplies the share price by the number of shares outstanding
• reflects the equilibrium between buyers and sellers of company stock
• involves the capital asset pricing model
• estimates the cost of replacing a companys resources

Explanation:

• The income approach to valuing corporations often involves discounting future cash flows, and the Capital Asset Pricing Model (CAPM) is used to determine the required rate of return (discount rate) for such valuations.
• "Multiplies the share price by the number of shares outstanding" is the market capitalization (market approach), not income approach.
• "Reflects the equilibrium between buyers and sellers" is about market pricing (market approach).
• "Estimates the cost of replacing resources" is the cost approach, not income approach.

Answer:

C. Involves the capital asset pricing model