The Value of Intangibles for Decision Analysis under the Influence of a Pandemic

Professor Emeritus, University Of Rhode, Island ,Jeffrey E Jarrett

doi:10.47363/jesmr/2021(2)116

Professor Emeritus, University Of Rhode, Island , Jeffrey E Jarrett

Open Access

https://doi.org/10.47363/jesmr/2021(2)116

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Abstract

The abandonment option under various capital budgeting models are discussed in this manuscript to bring forth the notion that present value of cash flows is often improperly estimated in the financial models utilized in the decision analytic process. In this study, intellectual property rights and other intangible assets often are often not considered in accounting estimation processes utilized in financial accounting. A decision maker often utilizes misestimates of the present value of cash flow resulting in less-than-optimum capital budgeting decisions. Decisions to abandon for salvage and other similar decisions improve when the present value of intangibles and property rights are included in the decision process. This last statement is the goal of this study as well as to present well-founded processes to improve abandonment and similar decisions in capital budgeting decisions. The estimation problem in financial accounting is included in the analysis to accomplish this goal. In addition the role of a Pandemic is emphasized

Highlights

Financial researchers such as Deschow indicated that employing accrual-based accounting methods creates the capability of accounting-based earnings projections to control and continuously improve the measures of firm performance reflected in analysts’ earnings forecasts [1,2]
The problems associated with valuing intangible assets and intellectual property rights (IPR) are similar to those involved in decisions about mergers and acquisitions (M&A)
This study suggests ways of estimating earnings and PVCF when considering the effects of IPR and other intangible assets in the process

Summary

Introduction

Financial researchers such as Deschow indicated that employing accrual-based accounting methods creates the capability of accounting-based earnings projections to control and continuously improve the measures of firm performance reflected in analysts’ earnings forecasts [1,2]. We examine how the presence of the abandonment option uses normal capital budgeting methods to determine whether there is a relation among the various capital budgeting options, financial leverage, and estimating earnings by analysts. The Capital Budgeting Methodology Berger (1996) established the link among analysts’ forecasts, cash flow, the expected capital asset pricing model (CAPM) return, and the present value of cash flow, which includes forecasts of earning rather than the distributable cash flow.

Results

Conclusion