1 Illustrative Example of Intangible Asset Valuation Shockwave Corporation Working Party No. 6 s Special Session on the Transfer Pricing Aspects of Intangibles
2 Foreward This presentation contains general information only and none of Deloitte Touche Tohmatsu, its member firms, or affiliates ( Deloitte ), by means of this presentation or its publication, rendering accounting, business, financial, tax, legal, investment or other professional advice or service. The opinion expressed within this presentation are my own and do not necessarily represent positions, strategies or opinions of Deloitte, nor The Canadian Institute of Chartered Business Valuators. This is not an official presentation from Deloitte. The presentation is for general information purposes only and should not be considered as a substitute for professional advice and counsel. OECD TP WP6: Illustrative Example of Intangible Asset Valuation Deloitte & Touche LLP and affiliated entities.
4 Overview. Valuation process. Methodology Recap: Reflief from Royalty Excess Earnings Cost Greenfield With or Without. Illustrative Example Shockwave Case Study Tradenames Content Workforce License Customers Technology. Reasonability Weighted Average Return on Assets OECD TP WP6: Illustrative Example of Intangible Asset Valuation Deloitte & Touche LLP and affiliated entities.
5 Valuation Process Value Conclusion Reasonableness Step 7 Project Planning Analysis Step 6 Diligence Step 5 Identification Step Purpose Scoping Step Step Valuation Step 5 OECD TP WP6: Illustrative Example of Intangible Asset Valuation Deloitte & Touche LLP and affiliated entities.
7 Relief from Royalty Description Frequent Applications Determines value by reference to the hypothetical royalty payments that would be saved through owning the asset, as compared with licensing the asset from a third party. Brand (most common); Technology; and, Know-how. Key Inputs t FV = PV(r) t=0 Revenue x Royalty ( tax) Diligence Matters Revenue forecast associated with the intangible asset being valued Expected life of the intangible Notional royalty rate applicable to the intangible Discount rate Revenues that are not attributable to the intangible (i.e. non-brand product revenues) Length of economic benefit of the asset Appropriateness of observable comparables used to derive a notional royalty rate Risk premiums included in the discount rate 7 OECD TP WP6: Illustrative Example of Intangible Asset Valuation Deloitte & Touche LLP and affiliated entities.
8 Excess Earnings Description The present value of the earnings attributable to the subject intangible asset after providing for the proportion of the earnings that attribute to returns for contributory assets. In order to determine a fair return on and/or of these contributory assets, their value must be capable of being determined in priority. 5 Key Inputs Applicable revenue forecast Applicable expenses Contributory asset charges ( CAC ) Expected future tax rates Expected life Discount rate t FV = PV(r) Tax amortization benefit (asset values, tax rates, tax amortization rates) 6 t=0 Customer relationships Vendor relationships Technology Revenue Expenses CAC s Taxes Revenue migration/attrition rate Frequent Applications IPR&D Diligence Matters Expenses saved or to be excluded from the earnings attributable to the asset (i.e. S&M) Valuation/selection of the contributory assets and the rates of return used in calculation Consistency of expenses and CAC s 7 PV(r) + Tax Benefit Order backlog Licenses Risk premiums included in the discount rate 8 OECD TP WP6: Illustrative Example of Intangible Asset Valuation Deloitte & Touche LLP and affiliated entities.
9 Cost Description Frequent Applications Estimates the fair value of an asset by approximating its depreciated replacement cost, which would include all costs necessary to construct a similar asset of equivalent utility at prices applicable at the time of reconstruction. The cost approach is based on the premise that a prudent third-party purchaser would pay no more for an asset than its replacement cost. Licenses and permits; Certifications; Internally-generated software; and Workforce. Key Inputs Replacement Cost New Obsolescence Factors Diligence Matters All hypothetical costs that are needed to recreate the asset including materials and labour Adjustment factors to reduce the replacement cost to the functional, economic, and technological condition of the subject asset Inclusion/exclusion of any overhead costs and the allocation rate used; Inclusion of opportunity costs; Functional, economic, and technological adjustment factor assumptions Inclusion of taxes or tax shield 9 OECD TP WP6: Illustrative Example of Intangible Asset Valuation Deloitte & Touche LLP and affiliated entities.
10 With or Without Description Estimates the fair value of an asset by comparing the value of the business inclusive of the asset, to the hypothetical value of the same business excluding the asset. Frequent Applications Non-competition agreements; Franchises; and Processes and technologies. Key Inputs t FV = PV (r) t=0 Revenue Expenses CapEx/WC Taxes 5 6 t PV (r) t=0 Revenue Expenses CapEx/WC Taxes 7 PV (r) + Tax Benefit Diligence Matters Free cash flow forecast for business with asset Enterprise-wide discount rate Expected life of business Free cash flow forecast excluding subject asset Enterprise-wide discount rate excluding asset Expected period to replace asset + costs Tax amortization benefit (asset values, tax rates, tax amortization rates) Identification of incremental income Length of recreation period and pattern of ramp-up Assumption around competition and market share Cost of recreation Incremental risk to business cost of capital excluding asset 0 OECD TP WP6: Illustrative Example of Intangible Asset Valuation Deloitte & Touche LLP and affiliated entities.
11 Greenfield Description Estimates the value of the asset based on the discounted cashflows of a notional start-up business with no assets but the subject intangible. Application Non primary income generating assets Licenses and permits; Rights (i.e. Water, cutting, mining) Franchise agreements Key Inputs t FV = PV(r) t=0 Revenue Expenses CapEx/WC Taxes PV(r) + Tax Benefit Diligence Matters Start-up cashflow forecast, including capital costs Expected ramp-up period and pattern Start-up-type discount rate Tax amortization benefit (asset values, tax rates, tax amortization rates) Support for start-up levels of income and capital costs Support for length and pattern of ramp-up Assumption around competition and market share Incremental risk premiums in discount rate to reflect start-up nature of cashflows OECD TP WP6: Illustrative Example of Intangible Asset Valuation Deloitte & Touche LLP and affiliated entities.
12 ENTERPRISE VALUE Risk Introduction Discount rate considerations WACC WARA Discount rate Considerations > WACC Goodwill > cost of equity > returns on other assets Equity Intangible Assets Cost of equity In between rates for tangible asset backing and goodwill Debt Fixed assets Working Capital Lease rates Mortgage rates Asset-backed lending rates Short-term borrowing rate Reward OECD TP WP6: Illustrative Example of Intangible Asset Valuation Deloitte & Touche LLP and affiliated entities.
13 Illustrative Example Shockwave Corporation
14 Shockwave Corporation: Business Overview Business Overview Shockwave Corporation is Canada s largest satellite radio provider. Shockwave commenced operations five years ago when the Canadian government granted satellite spectrum licenses to four Canadian start-ups seeking to cultivate a then burgeoning industry for Canada. Since that time, precipitated by the accelerating wireless data needs of telecommunication industry technology, the government has stated that it will not be licensing any new spectrum for satellite radio, but may approve the sale or transfer of existing spectrum. Shockwave generates its revenue from monthly subscriptions to consumers sourced via a direct retail sales channel (i.e. direct mail, print and television advertisements, billboards, and retail in-store kiosks). Shockwave does not manufacture the satellite radio receivers used by consumers, but transmits signals that can be received by a unit once the unit is registered/activated as an Shockwave unit. After five years of research and development activities, Shockwave developed a proprietary software technology for the transmission of on-demand radio content. As a result, Shockwave created six new ondemand premium subscription stations exclusively broadcasting educational programs covering Parenting, Finance, History, Motivational topics, Biographies, and Cooking. This premium service is only offered to customers that are on a regular subscription, and are not available separately. The success of this novel business was immediate, generating incremental revenues of approximately $5 million last year. Most of Shockwave s regular music and talk radio content is acquired from third-party sources, based on normal recording industry royalty-based pay scales. However, for the exclusive broadcast on its premium ondemand channels, Shockwave produced an archive of over,000 twenty- to sixty-minute proprietary programs protected by copyright created via internal publishers and third-party consultants (i.e. doctors, professors, and professionals). Two of Shockwave s competitors operate in the BB space, providing satellite radio content to the airline, and commercial real estate industries, respectively. These competitors have unbranded product offerings. OECD TP WP6: Illustrative Example of Intangible Asset Valuation
15 Shockwave Corporation: Valuation of Intangibles On January, 0, the shares of Shockwave were acquired for $0.8 billion. The net debt and tangible assets acquired approximated $0. billion and $0.5 billion respective. The Purchaser would like you to fair value Shockwave s material identifiable intangible assets for certain financial reporting and tax needs. Equity Price $0.8 Billion Net Debt $0. Billion Enterprise Value $. Billion Tangible Assets $0.5 Billion Intangible Assets $0.7 Billion Identified Intangibles Tradename On-Demand Technology Customer relationships Broadcast License Program Content Assembled Workforce Goodwill Valuation Methodologies Relief from Royalty Excess Earnings Cost Greenfield With or Without 5 OECD TP WP6: Illustrative Example of Intangible Asset Valuation
16 Shockwave Corporation: Historical Operating Results Historical Operations Regular subscription revenues have grown from $00 million to $900 over the first 5 years of operations Cost of sales for regular subscriptions reflect normal industry music content royalties and equate to 60% of revenues Direct costs for On-Demand subscriptions represents a non-variable cost and ranges between $800/min and $,000/min for content development. Approximately,000 programs have been developed to date for a total cost of $60 million Operating, sales & marketing, and G&A expenses are semi-variable in nature, approximately 60% of which is labour costs (production, human resource, legal, sales, marketing, finance, and executive), with the balance representing third-party consulting, marketing, professional and facilities costs. These costs increase pro-rata with On-Demand revenues 5 Shockwave incurred approximately $60 million in R&D spending to develop the On-Demand technology platform over a 5 year period 6 General brand marketing costs approximate /rds of the total sales and marketing spend, which approximates % to % of revenues 7 Financial position includes $76 million of working capital, $8 million of PP&E, and $00 million of net debt Cashflow Statement Revenue Regular On-Demand COS Regular On-Demand Gross Profit Operating Costs R&D S&M G&A EBITDA (0) % 7% % 6% 8% Depreciation EBIT (0) (50) (5) (8) 8 7 Taxes Depreciation - (5) (7) (87) (9) (96) Capex Working Capital (0) (75) () (68) () 8 Statement of Financial Position Net Working Capital 76 Net Debt 00 Broadcasting PP&E 8 Equity Total Assets 5 Liabilities & Equity 5 6 OECD TP WP6: Illustrative Example of Intangible Asset Valuation
17 Shockwave Corporation: Acquisition Forecast Acquisition Forecast Cashflow Statement Residual Revenue Regular 95 99,0,09,9,06 Regular subscription revenues are expected to grow 5% annually On-Demand ,06,09,6,0,6,7 On-Demand subscriptions are expected to increase COS Regular from 5% of the customer-base in 00 to 7.5% in 0, On-Demand before leveling at 0% beyond Approximately $0 million of On-Demand content will Gross Profit be developed annually to replace the / rd that will Operating Costs become obsolete annually, and grow the business 5 R&D Operating, Sales & Marketing, and G&A expenses are S&M expected to grow between %-% annually G&A Due to continual technological changes in transmission EBITDA and receiving technology, Shockwave re-writes 9% % % % % % approximately 0% of the software's algorithm code on Depreciation an annual basis EBIT The Purchaser cannot avail themselves of historical tax Taxes losses, and expects to pay taxes at a rate of 5% Depreciation (98) (98) (98) (99) (99) (99) 7 Capex Capital expenditures are expected to replace 8 Working Capital broadcasting equipment depreciating 0% annually Non-cash working capital investments of 8% of 9 Long-term growth.5% revenues Residual Value,8 9 Long-term growth is expected to equal % to % Discount Periods Discount Factor.0% The internal rate of return of % reflects a marketbased Present Value WACC, an after-tax cost of debt between 5%-6% Enterprise Value,99 and a cost of equity between 5% to 6% Net Debt 00 Fair Value of Shares OECD TP WP6: Illustrative Example of Intangible Asset Valuation
18 Shockwave Corporation: Diligence Information Customers Subscribers are renewing at a rate of 80% annually, which is consistent with other marketplace participants Approximately / rds of S&M costs are marketing related, with / rd attributable to new customer acquisition and selling costs On-Demand Technology Management could recreate the technology at the same cost, with an accelerated development timetable of rather than 5 years Given the annual updates to 0% of the technology, the estimated life of the existing technology approximates 5 years License Tradename Given the newness of the industry, new entrants would follow the same pattern of market share growth once licensed. BB unbranded competitor product offerings are half the price, and accrue /rds the annual marketing spending Capital providers for radio start-ups expect a return on investment of approximately 0% Operating costs in 005 related to licensing activities Research of arm s length tradename arrangements evidences royalties of % for telecom retailers, % on retail products, 6% for food services, and % for technology resellers On-Demand Content Workforce Approximately 0% of the content developed in 00 is outdated, and 5% of the content is inactive/unused Costs approximate $000/min for parenting & health modules (0 min), $,500/min for 0 min finance & motivational modules and 60 min biographies, and $,500 for 60 min history modules Recruiting costs for operations staff New hires are 50% as productive as existing approximate 0% of salary, 5% for R&D and staff over a 6 month training period for R&D S&M staff, and 0% for G&A staff and G&A staff, and a month period for operations and S&M staff 8 OECD TP WP6: Illustrative Example of Intangible Asset Valuation 009 Deloitte Touche Tohmatsu
19 Shockwave Corporation: Diligence Information Intangible Asset Tradenames Content Workforce License Customers Relief from Royalty Excess Earnings Cost Greenfield With or Without Technology Rationale Availability of comparable and observable royalties Replacement costs available Costs and time not prohibitive Only acceptable method No independent cashflows or observable market No observable market or ability to replace independently Impacts overall cashflows for the business without an ability to disaggregate No observable market or ability to replace independently Independent direct cashflows are capable of being estimated and disaggregated from total cashflows No observable market Independent direct cashflows are capable of being estimated and disaggregated from total cashflows Costs and time to recreate are capable of being estimated 9 OECD TP WP6: Illustrative Example of Intangible Asset Valuation 009 Deloitte Touche Tohmatsu
20 Shockwave Corporation: Tradename Relief from Royalty Tradename ($millions) Residual Revenues,06,09,6,0,6,7 Royalty Rate.50%.50%.50%.50%.50%.50% Royalty Savings Taxes 5.0% () () () (5) (5) (6) After-Tax Royalty Savings Long-term Growth.5% 6 Discount Periods Discount Factor 6.5% Present Value Total 98 TAB 5 9 Fair Value 7 5 Tax Basis Assumption of depreciable tax basis for asset Discount Rate Cost of equity Indefinite life Revenue growth risk Brand recognition, competition, and margin WARA Revenues Based on forecast for all branded revenues Royalty Rate Comparable research range of % to 6% Brand Margin BB Retail Diff Product Price Marketing Cost 6 8 Net Profit 9 7 % 89% 9% % Life Assumption of an indefinite life 0 OECD TP WP6: Illustrative Example of Intangible Asset Valuation 009 Deloitte Touche Tohmatsu
21 Shockwave Corporation: Content Cost Approach Replacement Cost (new) Assumed no inflation from the original costs to develop in 00 Functional Obsolescence Assumption that these modules would be replicated in an updated version if replaced Replacement Cost New ($mill) Outdated Inactive Depreciated Replacement Cost ($mill) Module Type (Mins) # of Modules Cost/Min ($) Parenting 0 50, Health 0 75, Finance 0 00, Motivational 0 5, Biographies 60 00, History 60 50, , Economic Obsolescence Assumption that these modules would not generate future economic returns if replaced 5 Depreciated Replacement Cost Assumption that any tax benefits and costs would offset (embedded TAB ~$7 million) Assumption that there are no additional opportunity costs (i.e. significant time investment) OECD TP WP6: Illustrative Example of Intangible Asset Valuation 009 Deloitte Touche Tohmatsu
22 Shockwave Corporation: License Greenfield Approach Residual Revenue Regular On-Demand COS Regular On-Demand Gross Profit Operating Costs R&D S&M G&A EBITDA () % 7% % 6% 8% Capex Working Capital (90) () (68) () 8 Residual Value,99 Discount Periods Discount Factor 0% Present Value (56) (0) () () 58 Total 8 Tax Amortization Benefit 5 Fair Value of License Revenues Assumed original 005 through 00 start-up costs would be equally applicable as at valuation date, including ramp-up and commercialization pattern, margins, and capital costs, with the exception of: Reduced time-period by year, assuming 005 activities could be truncated Excluded year start-up costs for G&A and operations ($5 million), assuming these costs relate to licensing activities Residual Value Based on current purchase price as representative of exit value Discount Rate Reflective of start-up type required rates of return Tax Basis Assumption of depreciable tax basis for asset OECD TP WP6: Illustrative Example of Intangible Asset Valuation 009 Deloitte Touche Tohmatsu
23 Shockwave Corporation: Workforce Cost Approach Recruiting Costs Costs to find and replace workforce based on normal search and hire costs Training Costs Opportunity cost of salary incurred over period new hires would be unproductive or underutilized Recruitment Cost (% of Salary) Recruitment Cost ($000/FTE) Unproductive Training Period (months) Training Cost ($000/FTE) Replacement Cost ($000/FTE) Replacement Cost ($millions) Avg. Salary Workforce # of FTEs ($000) Operations % R&D % S&M % G&A % Total,50 0,850 9 Workforce Assumed all employees are required to generate value, and are compensated at FMV Depreciated Replacement Cost Assumption that any tax benefits and costs would offset (embedded TAB ~$7 million) Assumption that there are no additional opportunity costs (i.e. significant time investment) OECD TP WP6: Illustrative Example of Intangible Asset Valuation 009 Deloitte Touche Tohmatsu
24 Shockwave Corporation: Customers Excess Earnings Revenues 95 99,0,09,9,06 Customer Erosion 0.0% 80% 6% 5% % % 6% Existing Customer Rev COGS Operations S&M 0.0% G&A EBITDA Depreciation EBIT Taxes 5.0% Fixed Assets.% Brand.% Working Capital 0.7% 5 License 0.8% 6 5 Workforce 0.% Discount Periods Discount Factor 5 5.0% Present Value Discrete Period Residual Total 75 TAB 8 6 Fair value 0 5 Discount Rate Reflects cost of equity, adjusted for risk profile 6 Tax Basis Assumption of depreciable tax basis for asset Revenues Based on overall forecast revenues for the business, assuming: Existing subscribers will experience 0% annual attrition Existing subscribers revenues, net of attrition, will growth at the same rate as new subscribers On-demand revenues are attributable to technology rather than customers Costs COGS, operating costs, G&A, and depreciation assumed to attribute to existing customer revenues on a pro-rata basis with new customer revenues S&M Costs S&M costs excluded assuming no incremental selling costs to existing customers, and a brand CAC to cover general marketing Contributory Asset Charges Next Slide OECD TP WP6: Illustrative Example of Intangible Asset Valuation 009 Deloitte Touche Tohmatsu
25 Shockwave Corporation: Contributory Asset Charges Residual Opening PP&E Capex Depreciation 0.0% Ending PP&E Return On 8.0% Revenues 95 99,0,09,9,06 CAC - PP&E.%.7%.6%.%.%.%.0% Opening Working Capital Change Ending Working Capital Return On.% Revenues 95 99,0,09,9,06 CAC - PP&E 0.7% 0.7% 0.7% 0.7% 0.7% 0.7% 0.7% Opening Content New Content Depreciation 0.0% Ending Content Return On 5.0% Revenues Return On % 0% 7% 6% 6% 6% 6% Return Of Return Of % 8% 0% 9% 9% 9% 8% CAC - Content 7.% 7% 6% 5% 5% 5% 5% Tradename Pre-tax.5% Tradename After-tax.% Tradename CAC Based on after-tax royalty rate used to value asset 5 OECD TP WP6: Illustrative Example of Intangible Asset Valuation PP&E CAC Represents Return On investment in PP&E only, as Return Of investment in PP&E considered in the Excess Earnings via depreciation Required Return On investment rate based on consideration of ABL rates (i.e. mortgages, leases, senior debt, secured lending, etc.) CAC as a percentage of total revenues over which asset accrues its returns Working Capital CAC Represents Return On investment in working capital only, as the asset does not waste Required Return On investment rate based on consideration of short-term borrowing rates CAC as a percentage of total revenues over which asset accrues its returns Content CAC Represents Return On and Return Of investment, as replacement of the asset is not otherwise explicitly captured in the Excess Earnings Required Return On investment rate based on consideration of cost of equity, risk profile of the asset, and WARA CAC as a percentage of On-Demand revenues where the asset accrues its returns 009 Deloitte Touche Tohmatsu
26 Shockwave Corporation: Technology With and Without Residual Regular 95 99,0,09,9 On-Demand Revenues 95 99,0,9,5 Regular On-Demand 5 5 COGS Operations S&M G&A 6 7 R&D EBITDA Depreciation EBIT Taxes 5% After-tax earnings Capital Expenditures Working Capital Long-term Growth.5%,8 Discount Periods Discount Factor 5.5% Present Value Without Technology,08 With Technology,99 Technology Value 6 TAB 8 Fair Value With vs Without Deduct value of business with technology vs. without Assumption of depreciable tax basis for asset, not businesses Revenues Based on overall forecast revenues for the business, excluding on-demand revenues assuming: Pre-revenue build period of vs. 5 year Equivalent ramp-up pattern towards 0% of regular subscribers Costs COGS, Operating Costs, S&M, G&A based on proration of total revenues between regular vs. on-demand business assumed incremental to on-demand business (capital costs excluded) R&D Costs Assumed original $60 million development costs to be incurred over vs. 5 year period Residual Reflects original residual value after ramp-up period (including WACC) 5 Discount Rate Reflects heightened risk to overall business over ramp-up period 6 OECD TP WP6: Illustrative Example of Intangible Asset Valuation 009 Deloitte Touche Tohmatsu
27 5 Shockwave Corporation: Technology Excess Earnings Residual Revenues COGS Operations Development S&M.% 5 5 G&A EBIT Taxes Brand.% Content 7.% License 0.8% 6 Workforce 0.% PP&E 0.0% Working Capital 0.7% 0 Cashflow Long-term Growth.5% Residual 5 Discount Periods Discount Factor 7 6.5% Present Value Total TAB 8 Fair Value 6 7 Introduction Discount Rate Reflects cost of equity, WARA, risk profile of asset, and heightened risk of future development/perpetual life CACs Reflects required returns on and of contributory assets, but: Excludes PP&E Includes Content Revenues Based on total on-demand forecast revenues assuming: Perpetual life no obsolescence Regular subscriber revenues excluded -- attributable to other assets (i.e. customer value) akin to a CAC Costs Operating Costsand G&A based on proration of total revenues between regular vs. on-demand business assumed incremental to on-demand business Content Costs Considered as part of Content CAC (return on and of ), including reinvestment S&M Costs Assumed / rd of S&M costs represents selling costs attributable to on-demand business based on pro-rata revenues Assume brand CAC to cover general marketing 5 Development Costs All development costs to maintain and extend life of technology included 7 OECD TP WP6: Illustrative Example of Intangible Asset Valuation 009 Deloitte Touche Tohmatsu
28 5 Shockwave Corporation: Technology Finite Life 7 Introduction Residual Revenues Migration Factor 0.0% 90% 7% 58% 6% 7% 9% Existing Technology COGS Operations S&M.0% G&A EBIT Taxes Brand.% Content 7.% License 6 0.8% Workforce 0.% Working Capital 0.7% Cashflow Long-term Growth -5.% % -5% -5% -5% -5% Residual 0 Discount Periods Discount Factor 7.5% Present Value Total 68 TAB Fair Value 80 Discount Rate Reflects cost of equity, WARA, risk profile of asset, and heightened risk of future development/perpetual life 6 CACs Reflects required returns on and of contributory assets, but: Revenues Based on total on-demand forecast revenues assuming: 0% annual migration/obsolescence Regular subscriber revenues excluded -- attributable to other assets (i.e. customer value) akin to a CAC Content Costs Considered as part of Content CAC (return on and of ), including reinvestment Costs Operating Costs and G&A based on proration of total revenues between regular vs. on-demand business assumed incremental to on-demand business Excludes PP&E Includes Content S&M Costs Assumed / rd of S&M costs represents selling costs attributable to on-demand business based on pro-rata revenues Assume brand CAC to cover general marketing 5 Development Costs All development costs extend life of technology excluded 8 OECD TP WP6: Illustrative Example of Intangible Asset Valuation 009 Deloitte Touche Tohmatsu
29 Shockwave Corporation: Weighted Average Returns Analysis Tangible Assets Based on after-tax cost of debt, including short-term borrowings and ABL rates Intangibles Based on cost of equity, adjusted for risk profile and finite vs. indefinite life nature of assets Brand Represents time-weighted average start-up return of 0% and % terminal value return WARA -- With or Without Approach Asset Return Value (After-tax) Contribution to WACC Working Capital 76.9% 0.% Fixed Assets 8 6.5%.% Brand %.7% Technology 6.5%.8% Content 8 5.0% 0.5% Customers %.% License 5.5% 0.% Workforce.5% 0.% Goodwill 80.9%.5% Enterprise Value,99 WACC.0% WARA -- Excess Earnings Approach (Indefinite Life) Asset Return Value (After-tax) Contribution to WACC Working Capital 76.9% 0.% Fixed Assets 8 6.5%.% Brand %.7% Technology 6.5%.7% Content 5.0% 0.% Customers %.% License 8 5.5% 0.% Workforce.5% 0.% Goodwill 08 0.%.8% Enterprise Value,99 WACC.0% WARA -- Excess Earnings Approach (Finite Life) Asset Return Value (After-tax) Contribution to WACC Working Capital 76.9% 0.% Fixed Assets 8 6.5%.% Brand %.7% Technology 68.5% 0.8% Content 5.0% 0.% Customers %.% License 8 5.5% 0.% Workforce.5% 0.% Goodwill 6 0.%.8% Enterprise Value,99 WACC.0% Technology Based on cost of equity, adjusted for: Life (indefinite vs finite) Goodwill rate of return Development risk Incremental risk to overall business without technology, including residual value Technology Purpose and decision: Build vs. Buy Existing finite life vs indefinite future development rights Weighted Average Cost of Capital Value RRR Contribution Working Capital 75.9% 0.% LT Debt 5 6.0%.6% Equity % 0.%,00.0%.0% 9 OECD TP WP6: Illustrative Example of Intangible Asset Valuation 009 Deloitte Touche Tohmatsu
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