Service Capacity Replacement

D

The correct answer is D. Cost approach.

The cost approach is a method used to estimate the value of an asset by determining the cost to replace it, i.e., the cost to build or acquire an identical asset with the same service capacity.

In the context of this question, the amount required to replace the service capacity of an asset refers to the cost to rebuild or replace the asset. This cost includes all expenses related to the acquisition or construction of an identical asset with the same level of service capacity, including the cost of materials, labor, and other related expenses.

The cost approach is commonly used to value tangible assets, such as buildings, equipment, and other physical assets. It is particularly useful when the asset being valued is unique or when there is no market for the asset, which makes it difficult to determine its value using other methods, such as the market or income approaches.

In contrast, the market approach estimates the value of an asset based on the prices of similar assets that have recently sold in the market. The income approach estimates the value of an asset based on the income it generates or is expected to generate in the future.

The risk approach is not a method for valuing assets but rather a general concept used in risk management to identify and assess potential risks associated with an asset or investment. The risk approach involves analyzing the likelihood and potential impact of different risks and developing strategies to mitigate or manage them.