The correct answer is: A. VF = VE + VD
The net income approach is a method of calculating the value of a business by adding its net income to its value of assets and subtracting its value of liabilities.
Net income is the total amount of money that a business earns after accounting for all of its expenses. Assets are the things that a business owns, such as cash, inventory, and equipment. Liabilities are the things that a business owes, such as loans and accounts payable.
The net income approach is a useful way to calculate the value of a business because it takes into account all of the factors that contribute to its value. However, it is important to note that the net income approach is only one way to calculate the value of a business. Other methods, such as the market approach and the asset approach, may also be used.
Here is a brief explanation of each option:
- Option A: VF = VE + VD. This is the correct answer. It states that the value of a business (VF) is equal to its net income (VE) plus its value of assets (VD).
- Option B: VE = VF + VD. This is incorrect. It states that the net income (VE) of a business is equal to its value (VF) plus its value of assets (VD). This is not the case, as the net income of a business is only one factor that contributes to its value.
- Option C: VD = VF + VE. This is incorrect. It states that the value of assets (VD) of a business is equal to its value (VF) plus its net income (VE). This is not the case, as the value of assets is only one factor that contributes to the value of a business.
- Option D: VF = VE – VD. This is incorrect. It states that the value of a business (VF) is equal to its net income (VE) minus its value of assets (VD). This is not the case, as the net income of a business is only one factor that contributes to its value.