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Licensed Unlicensed Requires Authentication Published by De Gruyter June 2, 2015

The Valuation of a Patent through the Real Options Approach: A Tutorial

  • Gianpaolo Iazzolino ORCID logo EMAIL logo and Giuseppe Migliano

Abstract

The importance of knowledge and other intangible activities for the success of an enterprise have been broadly recognized over the last few years. In this paper a tutorial is illustrated on the valuation of a patent through the real options approach (ROA), since the use of the discounted cash flow (DCF) methods, such as the net present value (NPV), seems to show issues when evaluating opportunities, such as the ones offered by intangible activities. The logic underlying ROA is tightly based on financial options and, in this sense, uncertainty can be seen as an opportunity, and not necessarily as a threat and its effect on the value of an activity can become positive. The patent analysed (registered in 2009) is a patent by the Alfa Group (this is not the real name of the firm but is used here for privacy reasons), which is a worldwide leader in the production of Getters, metallic elements that, through a chemical absorption process, keep the devices in which they are embedded in vacuum status. Such equipment is used in lightning systems, monitor screens, flat screen TVs, etc. In this tutorial, an ROA has been developed in order to demonstrate how the value of intangible assets can be estimated by using an Italian case study that can be useful for further studies and uses.

Appendix A

Scenario no. 1 : σ = 35%; r = 4,39%; Underlying activity value

201220132014201520162017
16,112,887
11,354,560
8,001,4238,001,423
5,638,5085,638,508
3,973,3893,973,3893,973,389
2,800,0002,800,0002,800,000
1,973,1271,973,1271,973,127
1,390,4391,390,439
979,826979,826
690,471
486,567

Abandon option

201220132014201520162017
3,600
3,600
3,6003,600
3,6003,600
3,6003,6003,600
3,6003,6003,600
3,6003,6003,600
3,6003,600
3,6003,600
3,600
3,600
201220132014201520162017
Abandon
Abandon
AbandonAbandon
AbandonAbandon
AbandonAbandonAbandon
AbandonAbandonAbandon
AbandonAbandonAbandon
AbandonAbandon
AbandonAbandon
Abandon
Abandon

Investment option

201220132014201520162017
15,699,287
11,266,383
7,819,3427,587,823
5,390,253539,0253
3,678,5033,678,5033,559,789
2,472,2532,472,2532,472,253
1,622,2231,622,2231,559,527
1,023,2171,023,217
601,104566,226
303,647
72,967
201220132014201520162017
Investment
Deferral invest.
Deferral invest.Investment
Deferral invest.Deferral invest.
Deferral invest.Deferral invest.Investment
Deferral invest.Deferral invest.Deferral invest.
Deferral invest.Deferral invest.Investment
Deferral invest.Deferral invest.
Deferral invest.Investment
Deferral invest.
Investment

Choice option

201220132014201520162017
15,699,287
11,268,274
7,821,2327,587,823
5,392,1435,392,143
3,680,3933,680,3933,559,789
2,474,1432,474,1432,474,143
1,624,1131,624,1131,559,527
1,025,1071,025,107
602,995566,226
305,537
72,967
201220132014201520162017
Investment
Deferral choice
Deferral choiceInvestment
Deferral choiceDeferral choice
Deferral choiceDeferral choiceInvestment
Deferral choiceDeferral choiceDeferral choice
Deferral choiceDeferral choiceInvestment
Deferral choiceDeferral choice
Deferral choiceInvestment
Deferral choice
Investment

Appendix B

Scenario no. 1: σ = 35%; r = 4,39%; Value of the patent

201220132014201520162017
15,702,887
10,961,802
7,625,1827,591,423
5,278,0895,245,750
3,628,1283,597,1483,563,389
2,469,2582,439,5812,407,242
1,627,8651,596,8861,563,127
1,030,020997,681
603,585569,826
297,714
76,567

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Published Online: 2015-6-2
Published in Print: 2015-1-1

©2015 by De Gruyter

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