Submitted by: Submitted by dede
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Category: Business and Industry
Date Submitted: 11/16/2011 11:36 AM
The Market Approach
The Market Approach is a general way of determining a value indication of an asset using one or
more methods which compare the subject to similar assets which have been sold. Arm’s length,
open-market transactions can provide objective, empirical data for developing value measures.
The Market Approach is based on the principle of substitution: a notional purchaser would not
pay more for a business asset than for equally desirable opportunities with similar characteristics.
To the extent that empirical data on similar assets are available, this method can provide an
indication of value, as it is based on the behavior of knowledgeable and uncompelled buyers
and sellers in the marketplace, each of these parties attempting to maximize the respective
benefits.
This approach develops a value indication based on comparable market transactions or on market
license/royalty agreements for comparable intellectual property. The principal weakness of this
approach is that it is often difficult, if not impossible, to obtain information on actual transactions
or sales offers which can reasonably compare to the intellectual property being valued. As most
intellectual property is highly specialized, finding appropriate market-comparable assets is, at
best, difficult, particularly because details relating to licensing transactions (such as the level of
risk assumed by each party) are rarely disclosed and the only comparable is often found within
the company itself.
The Market Approach is mainly used in conjunction with the Income Approach (outlined below),
when comparable royalty rates are used in valuing intellectual property.
http://www.wbbusval.com/english/articles2.htm
Market Based Approach
Under this approach the value of intellectual property can determine by considering the market prices paid for similar properties as a part of third party transactions. It estimates the value of an intangible asset based on...