Valuation of a trademark
Trademarks are often valued using the "relief from royalty" method. This method assumes the value of a trademark to be equal to the net present value of future royalty savings that would need to be paid for the right to use the trademark (in a hypothetical case of not owning the trademark).
The relief from royalty method involves estimating likely future sales and an appropriate royalty rate to estimate post-tax royalty savings. As shown in the table below, the net present value of the post-tax royalty savings will be value of the trademark before amortisation benefits.
In order to reach the fair value of the asset, we have to multiply its value before amortisation benefits by a tax amortisation factor (TAB factor). The tax amortisation benefit factor (or TAB factor) is a mathematical function of a corporate tax rate, a discount rate (or WACC) and a tax amortisation period. You can calculate mid-year or end-year TAB factors in our Online TAB Calculator or find out more about its Theoretical Background.