Which of the following is a common technique for the income approach in business valuation?

The income approach is a key business valuation method that focuses on the future income potential of a business. The present value technique is fundamental to this approach as it allows an appraiser to estimate the current worth of future cash flows that the business is expected to generate. By discounting those future cash flows back to their present value using an appropriate discount rate, typically based on an assessment of risk and expected return, the valuer can arrive at a valuation that reflects the anticipated financial performance of the business.

This technique emphasizes the underlying principle of time value of money, which asserts that a dollar received in the future is worth less than a dollar received today. Hence, by converting future expected cash flows into present-day values, stakeholders gain a clearer picture of the intrinsic value of the business based on its ability to generate profit.

The other options, while relevant in various contexts of business finance and valuation, do not specifically pertain to the income approach. For instance, the weighted average cost of capital is more related to determining the discount rate itself rather than a technique of valuation. Historical cost pertains to asset valuation based on their original acquisition costs rather than their income-generating potential, and market capitalization typically refers to the total market value of a company's outstanding shares, which is