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CMA Final · Strategic Performance Management and Business Valuation · Valuation of Assets and Liabilities

In valuing an intangible asset such as a brand by the relief-from-royalty method, which input is essential?

The essential input is the royalty rate the owner saves by owning the brand, applied to forecast revenues and then discounted. The method values the brand as the present value of avoided licence payments, not by historical advertising cost or tangible asset values.

  1. AReplacement cost of the factory producing branded goods
  2. BRoyalty rate that would be saved by owning the brand, applied to forecast revenueCorrect
  3. CBook value of advertising expenses over past years
  4. DLiquidation value of the company's inventory

Explanation

Relief-from-royalty estimates the royalties the owner avoids by not licensing the brand, applying a market royalty rate to forecast revenue, then discounting after tax. Historical advertising spend is a cost-based input, and factory or inventory values are unrelated to the brand.

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