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.