cashflowswewillestimatewillbeforonlythisperiodand
therewillgenerallybenoterminalvalue.Second,wehaveto
factorintheexpectedcostsofviolationsofthecopyrightand
trademark.Thesecostscanincludeatleasttwo items.The
firstisthelegalandmonitoringcostassociatedwithenforcing
exclusivity.Thesecondisthefactthatnomatterhowcareful
wearewiththemonitoring,wecannotensurethattherewill
benoviolations,andthelostrevenues(profits)thatariseasa
consequence will lower the value of the right.
ILLUSTRATION12.1:ValuingtheCopyrightonDamodaran
on Valuation—2006
Assumethat John Wiley & Sons has beenapproached by
anotherpublisherthatisinterestedinbuyingthecopyrightto
thisbook(DamodaranonValuation).Toestimatethevalueof
the copyright, we make the following assumptions.
4
- The book is expected to generate $150,000 in
after-tax cash flows for the next three years and
$100,000ayearforthefollowingtwoyears.These
arethecashflowsafterauthorroyalties,promotional
expenses, and production costs. - About 40% of these cash flows are from large
organizations that make bulk orders and are
consideredpredictableandstable.Thecostofcapital
applied to these cash flows is 7%. - The remaining 60% of the cash flows are to the
generalpublic,andthissegmentofthecashflowsis
consideredmuchmorevolatile. Thecostof capital
applied to these cash flows is 10%.