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Income Methods

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Simon Mak edited this page Aug 11, 2026 · 1 revision

Income Methods

Advanced income-based valuation methods from Chapter 4. Implemented in intangible_valuation.income_methods.

Relief from Royalty (RFR)

Values an intangible asset as the PV of after-tax royalty payments avoided by ownership.

Formula: For each period t: Royalty_t = Revenue_t × royalty_rate → AfterTax → PV_t

With TAB: Value = PV_after_tax × TAB_factor where TAB = 1/(1 - tax_rate × annuity_factor / useful_life)

from intangible_valuation.income_methods.relief_from_royalty import relief_from_royalty
value = relief_from_royalty(
    revenue_projections=[1_000_000, 1_100_000, 1_200_000, 1_300_000, 1_400_000],
    royalty_rate=0.05, discount_rate=0.12, tax_rate=0.25, useful_life=5,
)
# Patent value: $194,163.77 (with TAB)

MCP Tool: relief_from_royalty

Multi-Period Excess Earnings Method (MPEEM)

Values asset as PV of cash flows after deducting contributory asset charges (CACs).

Formula: Excess_Earnings_t = (CashFlow_t - Total_CAC_t) × (1 - tax_rate)

from intangible_valuation.income_methods.excess_earnings import mpeem
cfs = [200000, 220000, 240000, 260000, 280000]
cacs = [{"total_cac": 50000}, {"total_cac": 52000}, {"total_cac": 54000}, {"total_cac": 56000}, {"total_cac": 58000}]
result = mpeem(cfs, cacs, discount_rate=0.12, tax_rate=0.25)

Book Reference: Chapter 4, Income Methods — MPEEM

Incremental Cash Flow

Values asset as PV of additional cash flows with vs without the asset.

from intangible_valuation.income_methods.incremental_cashflow import incremental_cashflow
result = incremental_cashflow(
    cash_flows_with=[500000, 550000, 600000, 650000, 700000],
    cash_flows_without=[400000, 420000, 440000, 460000, 480000],
    discount_rate=0.10,
)

Contributory Asset Charges (CACs)

Calculates required returns on supporting assets.

from intangible_valuation.income_methods.excess_earnings import contributory_asset_charges
assets = [
    {"type": "working_capital", "value": 500000, "return_rate": 0.08},
    {"type": "fixed_assets", "value": 1000000, "return_rate": 0.10},
]
result = contributory_asset_charges(assets)
# Total CAC: $140,000.00

Method Selection Guide

Asset Type Recommended Method
Patent/Trademark Relief from Royalty
Customer Relationships MPEEM
Technology (proprietary) Incremental Cash Flow
Brand RFR or Excess Earnings

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