What is the formula used with the cost approach to value an asset?

The correct formula used with the cost approach to value an asset is based on the concept of determining the value of a property by calculating the replacement cost new (RCN) of the improvements, then subtracting any accrued depreciation, and finally adding the value of the land. This method reflects the idea that the value of a property is equivalent to the cost of creating a similar one at the current market conditions, adjusted for any depreciation that the property has incurred over time.

This approach takes into account how much it would cost to construct the same property today and considers the physical and functional obsolescence that may have affected its value since it was built. By adding the land value, the formula recognizes that land typically appreciates or maintains value separately from the structures or improvements on it.

In contrast, the other options focus on different valuation methods. The first option embodies an income approach, assessing value based on anticipated income and investment return, while the third option highlights a method based on physical dimensions and sales data, which is not relevant to the cost approach. The fourth option again refers to income-based valuation, specifically capitalization, which is not part of the cost approach methodology.