multipleproductlinesaswellasthecostofcapitalforafirm.
Wepresentedanumberofdifferentwaysofassessingbrand
namevalue,butacautionarynoteisthatbrandnamebecomes
difficulttovaluewhenitisentangledwithothercompetitive
advantages.
Thefinalgroupofintangibleassetsincludesthosethatdonot
generatecashflowsrightnowbuthavethepotentialtocreate
cashflowsinthefuture,undertherightcircumstances.Inthis
group,weincludenotonlyundevelopedpatentsandnatural
resourcereservesbutalsomoregenericflexibilityoptionsto
expand into new markets or businesses and to abandon
existing investments. These assets are best valued using
option pricing models.
APPENDIX 12.1: OPTION PRICING MODELS
Anoptionprovidestheholderwiththerighttobuyorsella
specified quantity of an underlying asset at a fixed price
(calleda strikepriceoran exerciseprice) atorbeforethe
expirationdateoftheoption.Sinceitisarightandnotan
obligation,theholdercanchoosenottoexercisetherightand
allowtheoptiontoexpire.Therearetwotypesofoptions:call
optionsandput options.
Call and Put Options: Description and Payoff Diagrams
Acalloptiongivesthebuyeroftheoptiontherighttobuythe
underlying asset at a fixed price, called the strike or the
exerciseprice,atanytimepriortotheexpirationdateofthe
option.Thebuyerpaysaprice(premium)forthisright.Ifat
expirationthevalueoftheassetislessthanthestrikeprice,
the option is not exercised and expires worthless. If, in