International Journal of Commerce and Management Studies (IJCAMS)

Peer Reviewed, Indexed Journal, ISSN 2456-3684

Vol.7, No.4, 2022, www.ijcams.com

Intellectual Property and Similar Assets; an Economic and

Decision Analysis
Jeffrey E. Jarrett, Ph.D.

Professor Emeritus

University of Rhode Island (COB)

reflected in analysts’ earnings forecasts. The

argument was that cash flow accuracy is
ABSTRACT expected to suffer from matching, realization,
and other timing problems concerning the timing
Valuing Intellectual Property (IPR) and similar of the recognition of costs and revenues.
assets brought upon accounting practice and Accuracy of financial earnings predictions was
studied by Brandon and Jarrett (1974), Jarrett
economic analysis severe problems in evaluating and Khumawala (1987), Jarrett (1983, 1992),
business decisions and management science of and Lambert, Matolcsy, and Wyatt (2015). They
compared methods of forecasting accounting
intangible business assets. At no time has the earnings seeking to learn how forecast models
principles of accounting and accounting research can be compared and possibly improved to
produce more accurate results as to cash flow.
determined rules, methods and principles Questions posed included sources of accuracy,
without error in this risky analysis. Proposed but accrual accounting alone was not considered
the most important source of inaccurate results.
here based on evidence methods based on However, no one established a theoretical link
estimation in accounting provided for better between sources of inaccuracy and the matching
principle and the accuracy of financial analysts’
methods valuing intellectual property and other forecasts even though many studied the problem
intangibles on financial statements. A rich (e.g., Jarrett, 1989, 1990; Clement, 1999; Gu and
Wu, 2003; Ramnath, Rock, and Shane, 2008;
history in such methods is the subject here. Groysberg, Healy, Nohria, and Serafeim, 2011).
Accounting reports containing these forecasts of
Key Terms cash flow and rates of return are in addition
subject to fluctuations in the interpretation of
Intellectual Property; Decision Analysis; timing principles utilized by accountants.
However, Gu and Wang (2005) brought up the
Estimation in Financial Accounting; Valuation possibility of another source of inaccuracy in the
forecast of rates of return, cash flow, and
Introduction earnings. Beneish, et al. (2013, 2015, 2016)
created a model that uses financial
Financial researchers such as Dechow (1994; ratios calculated with accounting data of a
Dechow and Schrand, 2004) indicated that specific company to check if it is likely that the
employing accrual-based accounting methods reported earnings for a firm were manipulated,
creates the capability of accounting-based the goal being to estimate earnings better in
earnings projections to control and continuously financial reports. Last, Lev and Gu (2016)
improve the measures of firm performance produced evidence from large-sample empirical
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 International Journal of Commerce and Management Studies (IJCAMS)
Peer Reviewed, Indexed Journal, ISSN 2456-3684
Vol.7, No.4, 2022, www.ijcams.com

analysis that financial documents continuously In the absence of the real option, the following
deteriorate in relevance to investors’ decisions. trade-off arises: If information is timely, the
Further, they detail why accounting reporting is investment decision can be based on perfect
losing relevance in today’s decisions related to information. Alternatively, if information about
capital budgeting and the abandonment option. intangible assets is not considered in the
abandonment option, the timing and decision
More recently, Rees (2015) studied financial concerning the abandon option may very well be
analysts’ forecasts of earnings, pointing out the estimated incorrectly. The incorrect information
incentives and constraints that impact on is the product of the misreporting of factual
analysts’ forecasting proficiency. His results events associated with intangible assets, and the
pointed to the seemingly poor performance of error associated with incorrect analysts’
published analysts’ forecasts often resulting forecasts. This turns into the estimation problem
from difficulties experienced when one attempts in financial accounting and, in turn, applies it to
to improve forecasts, and the evidence that is the relation of analysts’ forecasts and the bias in
apparently consistent with the ability of estimating earnings and cash flow present in
analysts’ forecast to provide a basis for earning evaluating capital decisions.
abnormal returns. The final point is not without
criticism because investment practices based on The Capital Budgeting Methodology
publicly available information could be used to
demonstrate market inefficiency. Furthermore, Berger, Ofek, and Swary (1996) established the
given the relatively inaccurate nature of link among analysts’ forecasts, cash flow, the
forecasts, additional study of the nature of these expected capital asset pricing model (CAPM)
inaccuracies is the purpose of the conclusion return, and the present value of cash flow, which
suggested in the current studies. includes forecasts of earning rather than the
distributable cash flow. In addition, Wong
Currently, we examine how the presence of the (2009) examined the relation between the
abandonment option using normal capital abandonment option’s potential effect on a
budgeting methods to determine whether there is firm’s decision analysis and the eventual
a relationship among the various capital analytics employed to determine the optimal
budgeting options, financial leverage, and decision and operating leverage. Furthermore,
estimating earnings by analysts. We begin by McDonald (2003) analyzed abandonment
studying capital budgeting with the options, divestment options, expansion options,
abandonment option; later, most corporations and growth options previously examined in a
use capital budgeting procedures to coordinate survey by Triantis and Borison (2001). These
and motivate activities throughout their and many more studies revealed that they use
organization. It is well understood that the real options to the general problems associated
budgeting process is dynamic and flexible, with capital budgeting.
involving the information flow throughout the
organization that determines the investment and Analysts’ earnings forecasts enable analysts
abandonment decisions at the individual stages. to estimate the present value of cash flow
We now examine how an abandonment option
influences the optimal timing of information and (PVCF). According to Berger, Ofek, and
vice versa. In particular, we compare timely Swary (1996), the advantage is that analysts’
information, where the manager acquires perfect
pre-contract project information. We examine forecasts of earning do not incorporate the
how the future revenues from intangible assets value of the abandonment option. If business
may affect the level of financial leverage of a
firm when not all is known about the economic forecasts of distributable cash flows, cash
value of intangible assets. flows from non-ongoing concern events
would be included in the forecasts. Thus,
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 International Journal of Commerce and Management Studies (IJCAMS)
Peer Reviewed, Indexed Journal, ISSN 2456-3684
Vol.7, No.4, 2022, www.ijcams.com

earnings may not be the same as cash flows. (rm – rf) = risk premium of the stock market
minus the risk-free rate.
Hence, we adjust because capital
expenditures are not equivalent to In implementing Equation (1), we assume that
the relevant investment horizon is short term.
depreciation and the growth in working Therefore, a useful solution is to use the one-
capital is not subtracted from earnings. No month Treasury bill rate as a proxy for the risk-
free rate and a risk premium (the arithmetic
longer is it required to adjust for capital mean from a long period of time from between
structure changes in the environment that the return on the S&P 500 and the return on the
Treasury bills).
such changes cannot be foreseen. Borrowing
The problem with the above approach is the
again from Berger, Ofek, and Swary (1996), variable analyst forecasts of earnings. In part,
their equation constructs the PVCF evolving this is a solution to the problems noted by
Pappas (1977) in response to work by Brief and
from the analyst’s discounted forecasts. Owen (1968, 1969, 1970; Brief, 1977; Barnea
Included in the equation is the sum of the and Sadan, 1974; Jarrett, 1983, 1992), who used
their work in developing models to adjust
present value of analysts’ predicted going- analysts’ earnings forecasts in evaluating the
concern cash flows discounted by analyst abandonment option. Studies concerning
analysts’ forecasts are well known and include a
forecast of year t after-interest earnings and huge number. In general, as stated by many
expected CAPM (Intellectual Property and others in the field of financial accounting,
earnings forecasts are dependent on the
Similar Assets; an Economic and principles of financial accounting, which
produces the data for modeling trends and
Decision Analysis seasonality (or modeling components). The
accuracy of analysts’ forecasts has a long history
capital asset pricing model return, consensus and includes studies by Clement (1999), Gu and
forecast of five-year earnings growth, the Wu (2003), Ramnath, Rock, and Shane (2008),
terminal growth rate of earnings, the number of Groysberg, Healy, Nohria, and Serafeim (2011),
years for which earnings are forecast, and a year and Makridakis, Spiliotis, and Assimakopoulos
index. The CAPM adjustment includes the (2017). The last paper suggested that machine
reduction to the present value of analysts’ learning models may have better results than
earnings. The second adjustment to PVCF is the self-prepared models for forecasting. The
working capital adjustment, which is a reduction aforementioned studies focused on the
to the present value of analysts’ earnings relationship between analysts’ forecasts and the
forecasts to adjust for growth in working capital. magnitude and value of intangible assets.
Finally, the expected CAPM return is defined as Intangible assets were not considered in the
forecasting method discussed by the researchers
in their many and detailed studies. The value of
r = rf + βe * [rm – rf], intangible assets produces a great source of error
(1) if they are not considered in the forecasting
methods utilized by analysts in the production of
Where cash flow, rates of return earning per share
(EPS) forecasts. When adjustments for
rf = risk-free rate,
intangible assets are included in the analyst’s
βe = the firm’s beta or systematic risk (from the forecasts, Gu and Wang (2005, p. 673) stated
CRSP beta file), that “The rise of intangible assets in size and
contribution to corporate growth over the last
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 International Journal of Commerce and Management Studies (IJCAMS)
Peer Reviewed, Indexed Journal, ISSN 2456-3684
Vol.7, No.4, 2022, www.ijcams.com

two decades poses an interesting dilemma for Intellectual Property and Traditional
analysts. Most intangible assets are not Accounting Methodology
recognized in financial statement, and current
accounting rules do not require firms to report As noted by Brief and Owen (1969, 1970, 1977),
separate measures for intangibles.” Intangibles Jarrett (1971, 1974, 1983), Roberts and Roberts
include trademarks, brand names, patents, and (1970), and Barnea and Sadan (1974), the timing
similar properties that have value but are of recognition of revenue for intellectual
generally not listed in the financial reports of property rights (IPR) in financial statements of
firms. Many of these items are technology based ten are not featured in M&A activity. The
and are very important in financial decisions Financial Accounting Standards Board (FASB)
such as in M&As. They are an INTRICAL provides for such activities; however, they are
PART OF GROWTH in the growth of firms and often ignored due to their evasiveness or are not
therefore are shown to be related in the fully informational in the normally structured
statistical sense to the overall estimates made by rules. Recognizing future performance is a goal
accounting and analysts. of matching and timing but is unrelated to
recognizing cash flow and similar items in the
In another study concerning analysts’ forecasts, historical performance of a firm. Nonprofit
Matolcsy and Wyatt (2006) found an association entities often do not use accrual rules at all
between EPS forecast, growth rates forecast because the goal of these are related to achieving
error, and measures of technological conditions high rates of return. Often IPR for nonprofits
in the firm’s industry. They found that as the would differ from the same item for profit-
forecast horizon increases, the technological maximizing entities because the goal of seeking
conditions and current EPS are statistically high rates of return does not enter the strategic
associated with analysts’ forecasts. Long planning process for nonprofits (World Trade
horizon creates the conditions for within one to Organization, 2016). The purpose here is to
conclude that interactions between technological consider IPR as intangible assets, as a product of
conditions and current EPS are associated with intellect that law protects from unauthorized use
analysts’ EPS and growth forecasts. This by those not responsible for the IPR. Hence, IPR
conclusion aligns itself with Jung, Shane, and are characterized as the protection of
Yang (2012), who suggested that analysts’ distinguished signs such as trademarks for goods
growth forecasts effect efforts to evaluate and services, patents, and other similar items
intangible assets and produce optimistically that are under protection from unauthorized use.
biased long-term forecasts. Because intangible This includes art, music, creations by authors
assets that are often technology based and take including the authorship of computer software
up more of the balance sheet of many firms, it is and similar items such as discoveries,
likely that analysts’ forecasts may produce less inventions, phrases, symbols, and design.
accurate predictions of earnings, cash flow, and Obviously, a writer and conductor of music such
rate of return. The conclusions of Dechow as Leonard Bernstein and Daniel Barenboim
(1994) thus become less important. Balance would have created intellectual property (IP)
sheets usually have little or no involvement with that differs greatly from physicists such as Lise
the value of intangibles although there are some Meitner, Niels Bohr, or Albert Einstein.
practices by accounting that are still used. Thus
in the remaining portions of this analysis, we Presently, accounting suggests two methods to
propose a method by which one can estimate determine the value of IPR to produce better
earnings such that the value of intangible assets estimates of from accounting analysts’ forecasts.
is valued and earnings estimate are not biased by The convention of the “lower of cost or market”
serious errors of omission such that the capital is based on the rule of conservatism in valuing
budgeting model expressed earlier in equations assets to anticipate future losses instead of future
by Berger, Olek, and Swary (1996, p. 264) are gains. The policy tends to understate rather than
not unduly biased. overstate the value of net assets and could
therefore lead to an understatement of income,
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 International Journal of Commerce and Management Studies (IJCAMS)
Peer Reviewed, Indexed Journal, ISSN 2456-3684
Vol.7, No.4, 2022, www.ijcams.com

cash flow, earnings, and rates of return. The at least Bohr and Einstein received Nobel Prizes
purpose of this study and its conclusive result is which did include wealth, Meitner perhaps due
to neither understate nor overstate cash flow so to her gender and religious preference never
as to produce a rate of return on cash flow that is received the same award. For orchestral
commensurate with the goal of producing conductors and composers of music, there is no
accurate prediction of cash flow and its rate of economic award from the Nobel Prize
return for financial and decision-making committee. Accountants forecast the overall rate
purposes. Stated differently, the purpose is not to of return for a firm but do not ignore the
violate accounting policy but to ensure the M&A convention of “conservatism.” Accounting
that cash flow is estimated properly. practice values the IPR for a firm each year for
Traditionally, when accounting writes policy each and every IPR under consideration. The
about intangible assets as a residual, by principle of goodwill is not to be used during
“residual” they mean a buyer is ready to value a M&A activity to account for the value of IPR. IP
firm in excess of the value of the tangible assets. may induce not only greater asset values but also
This value is often referred to as “goodwill” affects the rate of return on cash flow because
(White, Sandhi, and Fried, 1994), which is an the denominator of the rate of return will
imperfect method. This notion of goodwill is change. (To understand the gravity of ignoring
estimated as a residual value. The valuation of or improperly valuing IPR, see Jarrett, 2016,
intangible property is also imperfect since it is 2017a, 2017b.) This result debated previously
considerd part of the solution of a bargaining (Brief and Owen, 1969; Brief, 1977; Pappas,
process during mergers and acquisitions. In this 1977) indicated that including earnings risk may
case, the buyer and seller may have different not fully reflect all risks in estimating earnings,
market power, which greatly affects the residual but it at least reflects that part of risk from the
of the bargaining process and produces an variation in earnings.
imperfect or biased estimate of the value of the
intangible assets. One may examine the case of Furthermore, Helliar, Lonie, Power, and Sinclair
the sale of Superman by struggling comic book (2001) summarized attitudes of managers toward
artists to a much larger corporate power who risk in the following way. The abandonment
could market the character to comic books, option may be extremely important when
television, and the film industry. The nearly considering the survival of a firm or nonprofit
destitute conditions of the original artists who entity. Survival is often the goal of the
created the intangible product could never cope abandonment option indicating that risks that are
with the business and marketing (power) of taken in special situations such as catastrophes
those who purchased the name Superman. Thus, when the survival of whole areas of an industry
goodwill becomes a vague valuation system that may be under threat (Shleifer and Vishny, 1992;
justifies the bringing of data analysis and science Liu and Liu, 2011) may be different from those
into the valuation process. taken in more usual environments. An entity in
decline may avoid innovative options and
Another solution suggested during the M&A concentrate on immediate short-term options
process is to simply list the patents, trademarks, rather than riskier longer-term projects with
brands, and similar items of IP in the financial more difficult goals to be accomplished. In
reporting of the firm. Following this initiative addition, the choice may rapidly increase the
and suggestion of the accounting principles rate upward of the process decline and result in
board provide little aid concerning the economic managers becoming more risk averse and not
value of IPR and products for a firm during the employing greater use of intangible assets and
M&A events. In the final step of the problem, IP.
the evaluation may conclude influence relating
to the biases of the reading of the financial Earnings Estimation Including the
reports. Such biases of IPR occurred often with Estimation and Monetary Values for
works of Meitner, Bohr, and Einstein. Whereas, Intangible Assets
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Peer Reviewed, Indexed Journal, ISSN 2456-3684
Vol.7, No.4, 2022, www.ijcams.com

In this section, we illustrate the size of the bias E (X’) = E(X) – iD for D >0; (2)
in estimating earnings when the monetary
equivalent of values of intangible assets is not Hence, E (X’) = E(X), for D = 0 (2’)
considered by analysts in estimating future The variance of total earnings is
earnings. Note that misestimating future
earnings affects PVCF resulting in errors in V (X’) = V(X) for D ≥0 (iD
assessing the abandonment option. Intangible
and is a constant) (2’’)
assets including patents, trademarks, copyrights,
and similar items are usually overlooked and/or The financial decision-optimum to fund the
not estimated properly in many financial purchase is an example of decision analytics
statements. These statements are considered where the decisions are to substitute debt for
fundamental information in determining PVCF common stock or not to substitute debt. Using
in abandonment decisions, mergers, acquisitions, data analytical language, for this decision
and similar financial decision analysis and problem, the states of nature are defined by
analytics.
E(X) >ID or E (X) ≤ID (3)
To illustrate the case of monetarizing property
rights and other intangibles often referred to by We define the opportunity loss function as an
the acronym IPR, let us consider the specific integral approximation the firm’s view toward
problem of a firm abandoning or selling IPR choosing a no optimal decision. No loss occurs
through a direct acquisition and the effect on when earnings are great than the cost of debt
debt as part of its holdings. Obviously, the ratio since management will benefit from the strategy
of common equity to total capital stock will be of leverage financing.
changed during the financial operation. In turn, As an example, consider cash flow to be greater
the effects of financial leverage on total financial than the cost of debt management and in turn the
risk will also be part of the problem. The rate of loss function would change reflecting the goal of
return to common shareholders is related to the optimum-decision analytics. The basic structure
measure of financial risk utilized in any decision of the acquisition strategy would not change
of this type. We assume that the firm is except for the substitution of cash flow for
motivated to finance the acquisition by leverage earnings. To calculate the opportunity loss
instead of issuing new common share or a strict function associated with this strategy, we
loan from a financial institution or similar estimate some probability density function
institution as the result of an economic (PDF) that approximates the PDF for future
optimization policy. Define T as the sum of debt earnings. Before we consider all PDFs, let the
and common stock. To illustrate simply, firm focus on the normal distribution or T-
preferred share and other financial instruments distribution having a very large number of
are valued at zero to avoid complications that
degrees of freedom, which approximates the
may hinder the explanation. S is the monetary standard normal distribution. The opportunity
value of outstanding common, and D is amount loss at breakeven (X b) becomes
of debt. X is the amount of earning in a future
time period. X is a random variable, and E(X) is X b = E (X’) – Z ((S (X’)) (4)
the mean of the random variable, V(X) the
variance, and S(X) the square root or standard Z refers to the normal fiducial deviate, and S
deviation. The cost of the debt per dollar is I, the (X’) is the standard deviation. By
interest rate. The mean earning per dollar of S is rearrangement, we find E(X) = E (X’) – iD. The
next step is to determine the size and distribution
E(Y) =E(X)/S = E(X)/ (T-D) (1) of the loss function for the distribution of future
earnings, which is all in line with objectives of
Note that Y is also a random variable with mean the timing of the realization revenues discussed
E(Y). Mean (or expected) earning is defined as before Jarrett (1971, 1992). In Table 1, we
follows: preview one of three methods to estimate the
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Peer Reviewed, Indexed Journal, ISSN 2456-3684
Vol.7, No.4, 2022, www.ijcams.com

monetary value of IPR. The E(X) is $4,200, and Estimation and timing of the recognition and
the S (X) increases by given amounts ($100). matching of costs and revenues are dependent on
Column 3 contains the cost of debt of $3,200. the underlying analysis of data that corroborates
The Z (the normal deviate) calculation is its use. Berger et al. (1996) obtained data from
accomplished column 4 with column 5 the International Brokers Estimate System
containing the cumulative normal probability. In (IBES) that have forecasts of earnings and
turn, the IPR monetary value is simply the growth in earnings. In Table 4, we provide their
normal probability multiplied by E (X) and is descriptive information on the sample
contained in column 6. The IPR$ is thus information obtained. The information obtained
calculated for a variety of circumstances. describes the distribution of PVCF for three
separate forecast methods. In analyzing these
Table 1 data, we calculated the skewness coefficient and
A second example of estimating the monetary presented the results in the expanded table. The
value of IPR (Table 2), E(X), and column 1 is analytics indicate the symmetry in the
constant from row to row, column 2, S(X) distributions of the PVCF data.
remains the same ($600) from row to row, and Table 4
column 3 the cost of debt changes from row to
row due to the change in the interest rate and As we see from Table 4, the distribution of the
other costs associated with debt. Column 4, the sample data is probably very close to
standard normal deviate, Z, decreases in value symmetrical and, in turn, likely to be distributed
from row to row, and column 5, the cumulative similar to a normal distribution process. If not
probability from the normal curve decreases exactly normally distributed, there are many
from row to row. The dollar value of the IPR ways one can estimate the distribution of the
will continually decrease from the top row to the PVCF data bringing more credibility to the
bottom row in Table 2. process. One last point concerning the
distribution of PVCF in Table 4 concerns the
Table 2 kurtosis in the sample data summarized above.
As one last example, in Table 3, we alter the Westfall (2014) notes that its only unambiguous
example by comparing the monetary value of interpretation is in terms of tail extremity—that
IPR when the cost of debt and debt: equity ratio is, either existing outliers (for the sample
in columns 1 and 2 of Table 3 change. In turn, kurtosis) or propensity to produce outliers (for
both columns 3 and 4 (cost of debt and net cash) the kurtosis of a probability distribution). The
change from row to row. The Z-statistics and logic is simple: Kurtosis is the average (or
normal probabilities change, and the monetary expected value) of the standardized data raised
value of IPR changes from row to row with the to the fourth power. Any standardized values
highest in row 1 and descending thereafter. that are less than one (i.e., data within one
standard deviation of the mean, where the
Table 3 “peak” would be) contribute virtually nothing to
kurtosis, because raising a number that is less
In summary, three sets of examples demonstrate
than one to the fourth power makes it closer to
that estimation theory in financial accounting is
zero. The only data values (observed or
a fundament portion of correcting financial
observable) that contribute to kurtosis in any
reporting data such that analysts now have a
meaningful way are those outside the region of
complete set of data to work with when making
the peak—that is, the outliers. Therefore,
earnings forecasts and other decisions. Our
kurtosis measures outliers only; it measures
finding does not dispute that of others.
nothing about the “peak.” Without the original
Additional Evidence Concerning Estimation data, one cannot measure the exact kurtoses for
Theory and Methods the data. However, one can observe that the
mean of the data and minimum and maximum
values do not differ by huge amounts. Hence,
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Peer Reviewed, Indexed Journal, ISSN 2456-3684
Vol.7, No.4, 2022, www.ijcams.com

the exact likelihood of long tails in the in the decision environment (see Chang, Kao,
distribution of data about the mean do not exists. Mashruwala, and Sorensen, 2017). . In addition,
The likelihood is, therefore, such an observation Fricker (2007) applied multivariate statistical
indicates that if at all, the measures of kurtoses quality control (MSQC) methods In addition,
would be relatively small and approach a normal MSQC applications by Fricker, Knitt and Hu
distribution when examining the population (2008) continued earlier studies by focusing on
from which the sample was chosen. Hence, the direction all sensitive procedures in bio
normal approximation when the sample size is surveillance
large as in the cases observed indicates the
validity of the normal approximation. This is Summary and Conclusion
also the case if one has evidence that the data are Firms entering into decisions in times of
distributed according to another probability financial distress are often confronted with
distribution function and that one could be used failure and survival. These decisions concern the
in evaluating the value of IPR. abandonment of assets. The problems associated
Introduction of More Technology with with valuing intangible assets and IPR are
Artificial Intelligence (AI) similar to those involved in decisions about
M&A. The firm’s environment may be different
To define technology improvements in each case, but the problems associated with
with reference to AI is not limited to machine predicting cash flow and earnings by analysts
learning. AI will impact many, if not all, still prevail. This study suggests ways of
segments of daily life in the next decade, with estimating the earnings and PVCF when
applications in a wide range of industries such as considering the effects of IPR and other
health care, transportation, insurance, transport intangible assets in the process. The proposal
and logistics (supply chain), and even customer studied meets the requirements of the estimation
service. The need for AI specialists exists in just theory in financial accounting, which is
about every field as companies seek to give consistent with accounting conservatism and
computers the ability to think, learn, and adapt. goals of financial accounting. Additional
IP and the investment in intangible assets methods exist for estimating the value of
providing sources of revenue and income, which intangibles, which include using the distribution
enable investors in securing wealth from their of financial earnings when the normal
investments in firms, contain IP and other distribution does not apply. This will be the
intangibles such as the use of estimation theory focus of new and additional research in the AI
in financial accounting, the abandonment option, environment of the near future.
and the valuing of intangible and similar assets.
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Vol.7, No.4, 2022, www.ijcams.com

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Table 1

Monetarization of IPR with

Changes in Standard Deviation of Earnings

E(X) S(X) Cost of Z-Score Cum. Prob. $IPR

Debt

4,200 400 3,200 2.50000 0.993790 4,174

4,200 500 3,200 2.00000 0.977250 4,104

4,200 600 3,200 1.66667 0.952210 3,999

4,200 700 3,200 1.42857 0.923436 3,878

4,200 800 3,200 1.25000 0.894350 3,756

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4,200 900 3,200 1.11111 0.866740 3,640

4,200 1,000 3,200 1.00000 0.841345 3,534

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 International Journal of Commerce and Management Studies (IJCAMS)
Peer Reviewed, Indexed Journal, ISSN 2456-3684
Vol.7, No.4, 2022, www.ijcams.com

Table 2

IPR Monetarization with

Changes in Interest Rates and Cost of Debt

E(X) S(X) Debt Cost Z Normal $IPR

Probability

2,100 600 500 2.66667 0.996170 2,091.96

2,100 600 1,200 1.50000 0.933193 1,959.70

2,100 600 1,400 1.16667 0.878327 1,844.49

2,100 600 1,600 0.83333 0.797672 1,675.11

2,100 600 1,800 0.50000 0.691462 1,452.07

2,100 600 2,000 0.16667 0.566184 1,188.99

Table 3

Monetary Equivalent versus Capital Structure

(Equity = $200,000)

Debt D:E Debt Cash S(X) Z Normal $IPR

Ratio Inflow Prob.
Cost

50,000 0.25 2,000 2,300 230 1.304 0.903942 180,788

60,000 0.30 2,400 1,900 190 –2.632 0.004249 850

70,000 0.35 2,800 1,500 150 –8.667 0.000000 0

80,000 0.40 3,200 1,100 110 –19.091 0.000000 0

90,000 0.45 3,600 700 70 –41.429 0.000000 0 13

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International Journal of Commerce and Management Studies (IJCAMS)
Peer Reviewed, Indexed Journal, ISSN 2456-3684
Vol.7, No.4, 2022, www.ijcams.com

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