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?
make projections, account for expenses (commissions, salaries, etc.), and discount to present values with an appropriate discount rate (higher for unproven authors/books)
You would simply treat the royalty like a dividend and discount to PV with Gordon. I believe you would not subtract commissions, salaries, etc., as you are interested in the gross value of the royalty alone and would account for expenses in the next step of the context of the royalty (i.e., when valuing a record label, publisher, etc.).
Accounting wise, you would book royalties in the same method as you book dividend, but it is wrong to use Gordon since it assumes constant growth and in perpetuity. Both of those assumptions are not correct at least for songs and books. http://en.wikipedia.org/wiki/Royalties Concerning using net or gross: does not matter much if you use correct discount rates. Acco mst Wrote: ------------------------------------------------------- > You would simply treat the royalty like a dividend > and discount to PV with Gordon. > > I believe you would not subtract commissions, > salaries, etc., as you are interested in the gross > value of the royalty alone and would account for > expenses in the next step of the context of the > royalty (i.e., when valuing a record label, > publisher, etc.).