thereal-options approach,weuse areplicating portfolioto
computevalue.Inthedecisiontreeapproach,weusethecost
ofcapitalfortheprojectasthediscountrateallthroughthe
process. If the exposure to market risk, which is what
determinesthecostofcapital,changesateachnode,wecan
arguethatusingthesamecostofcapitalallthewaythroughis
incorrectandthatweshouldbemodifyingthediscountrateas
wemovethrough time.If wedo,we willobtainthesame
valuewithbothapproaches.Thereal-optionsapproachdoes
allowforfarmorecomplexityandissimplertoemploywith
continuousdistributions(asopposedtothediscreteoutcomes
that we assume in decision trees).
CONCLUSION
Therearetwoclearpointsonwhichthereiswideagreement.
Intangibleassets area significantcomponent ofthe global
economyandofthevaluesofmanypubliclytradedfirms,and
accountantsdonotdoaverygoodjobofassessingthevalue
oftheseassets.Inthischapter,weturnedourattentiontohow
we can best estimate the value of intangible assets.
Thefirst andeasiestgroupofassetstovalueareintangible
assetsthatarelinkedtoasingleproductorserviceandare
generatingcash flows.Simpleexamples ofthesewouldbe
trademarks and copyrights, and they can be valued using
conventionaldiscountedcashflowmodels,with cashflows
estimated from the product or service over a finite life.
Thesecond groupofintangibleassets ismorecomplicated
becausetheseassetsgeneratecashflowstoafirmratherthan
toaspecificproduct,andtheirbenefitsaccruemorewidely.A
classicexampleisabrandname,whichcanaffectthesalesof