What formula is used to determine the value of an asset through capitalization?

The formula used to determine the value of an asset through capitalization is based on the principle that an asset's value can be derived from its expected income stream. Specifically, the process involves dividing the anticipated income from the asset by the desired rate of return. This approach helps to determine the present value of future income, reflecting the concept that the income a property generates is central to its overall value.

In capitalization, the anticipated income represents the cash flow that the property is expected to produce, typically on a yearly basis. The desired rate of return, also known as the capitalization rate, is a measure of the investor's expected return from the investment based on comparable market conditions and risk factors. By dividing these two figures, you arrive at the capitalized value of the asset, which is critical in real estate appraisal and investment analysis.

Other options may suggest different approaches or calculations that do not align with the fundamental principles of capitalization and income valuation. For instance, while adding income to expenses may provide some financial insight, it does not yield a clear indication of the asset's market value. Similarly, multiplying income by market trends or subtracting expenses from market value would not effectively address the capitalization approach to valuing an asset based on income potential.