When would you use the Capitalization of Income approach indefinitely?

The Capitalization of Income approach is used to determine the present value of an income stream that is expected to continue indefinitely. This methodology is particularly applicable in scenarios where the income replacement period is not defined, allowing for a continuous assessment of income needs over an indefinite duration. By using this approach, an individual can establish the present value of what they would require to sustain their income level over the long term, without a specified endpoint in sight.

This is especially salient for individuals who may rely on long-term income sources, such as business owners or professionals, where income continuity is critical and not limited to a specific timeframe. In contrast, other options refer to more defined situations, such as calculating income replacement for a certain number of years or future savings goals, which do not align with the indefinite nature of the Capitalization of Income approach.