8. The future income method
There are many variants of this method: one of them is the weighted net margin or expected net present value (ENPV) method, discounted using the actuarial DCF method.
This valuation is based on an estimate of operating income rather than gross margin, and does not take into account all the administrative, marketing, sales and R&D costs required to bring the product to market, which would lead to an overestimation of the value of the intangible asset concerned.
A valuation based on pre-tax income, which includes financial and exceptional income/losses, would also be inappropriate, as these parameters are not directly linked to the intangible asset and could lead to it being undervalued, if, for example, the company has a very high level of debt.
The method...
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The future income method
The Rule of the thumb empirical method
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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