does anyone know how to generally value royalties from a book? couldn’t find anything in the cfa materials. do you simply just calc the present value of the income stream?
One possibility is to base the valuation on expected cash flows and include adjustments for any possible variance of these cash flows in the required rate of return (calculated e.g. via CAPM). For some practical advice and examples I recommend relevant chapters from this book: Piet Sercu: International Finance: Theory into Practice. Princeton University Press, 2009.
DCF is way to go, i would also add probabilities either in $ amount or a % of achieving milestones…if you use CAPM, depending on the project the royalities are tied too u might need to adjust beta