Answer the following statements true (T) or false (F)
1. When valuing intangible property, all of the intangible assets are included in the calculation.
2. Fair market value is the value at which an asset will change hands when the exchange is between a willing buyer and a willing seller when neither is acting under compulsion and both have a reasonable knowledge of relevant fact.
3. The longer the forecast period, the more accurate will the forecast be.
4. Intangible property cannot be valued.
5. The Weighted Average Cost of Capital (WACC) can be used to discount all of the firm’s cash flows.
1.False – If the intangible property is part of the operating firm and the firm cannot operate without it, then its value is included in the operating section on not in intangible property. Only third party use of the IP should be valued.
2.True – by definition.
3.False – Three to five years should be the maximum forecast period given normal circumstances. If three to five years does not allow for firm profitability and positive cash flow to be achieved because of the nature of the industry, the forecast period can be extended to a point in time when firm profitability and positive cash flow are established and/or trends in profitability and positive cash flow can be assessed. The entrepreneur must remember that the longer the forecast period, the more error that will occur in the forecast.
4.False – Intangible property can be valued; however not as easily as an asset-producing ongoing cash flow stream or an asset consisting of real estate or securities, any of which have more easily obtainable public market prices or comparables
5.True –Cash flows that are available to all providers of capital (debt, equity, preferred stock) should be discounted by the WACC.
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