What is the formula for the index method of valuation?

The index method of valuation uses a formula that involves adjusting the original cost of an asset by a specific index to account for changes in value over time due to economic factors, market conditions, or inflation. This method is particularly useful when the actual cost of replacement has changed from the time the property was originally acquired.

In this context, the correct formula involves multiplying the original cost by an index that reflects these changes, hence providing a more current value. By using the index in this way, appraisers can estimate the value of a property without needing to know the current costs for replacement or any complex calculations related to depreciation. This approach allows for a simplified evaluation based on standardized values that can be easily referenced and updated over time.

Other methods mentioned, such as adding depreciation to the original cost or combining replacement cost with original cost, do not specifically represent the index method's focus on adjusting original cost through an index. Therefore, the approach that highlights the multiplication of original cost by an index directly aligns with the intent and mechanics of the index valuation method.