6. Discounting methods
The annual value obtained from the future use of the intangible asset is discounted, by applying a discount rate to take account of the cost of money and financial risk.
So for year n, a discount rate t, and a future value Vn, the net present value NPV is equal to Vn / (1 + t) n
As an example, a future income of 100 in 5 years' time, for a discount rate of 10%, corresponds to a net present value of 100 / (1 + 0.10) 5 = 62
There are numerous financial methods for estimating this discount rate, including the WACC and CAPM methods.
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Discounting methods
Estimation of risk or influence coefficients
Bibliography
R. Goldscheider, J. Jarosz and C. Mulhern, Use Of The 25 Per Cent Rule In Valuing IP , LES News, December 2002
Websites
http://www.ipresearch.com/index.htm Intellectual Property Research Associates website, offering information on licensing rates by industry sector.
www.lesi.org Licensing Executives Society website
Acronyms and abbreviations
CAPM: Capital Asset Pricing Model
WACC: Weighted Average Cost of Capital
DCF: Discounted Cash Flow
EBITDA: Earnings Before Interest Taxes and Amortization
ENPV: Expected Net Present Value
ISO: International Organization...
Vocabulary
Due diligence: financial audit
Cash flow: surplus of financial flows generated by the operation of intangible assets.
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