Question

1. Briefly discuss three approaches that may be used in brand valuation. What are some of the critical aspects to be considered in computing Brand value?
2. Discuss five factors that determine the value of a financial option. Use examples to illustrate your discussion?

Answer 1

Answer - 1

Brand Valuation : Brand Valuation is a determination of the value of brand that other party has to pay. Hence its a long term perspective of any Company which includes valuation in terms of assets held by the company along with the Trade Mark or intellectual property. On the other hand, it is being valued to have a fair market value of any Company's performance.   

There are three approaches or methods that may be used in valuation of Brand which are explained below :

(a) Market Based Approach : Market based approach basically based on the value or price at which the the buyers are willing to pay the sellters for an assets to be acquired or price determined based on the overall performance of the Company. The following are methods adopted under this approach:

(i) Comparable Approach : Under this method, the reference are taken on the recent tranasactions that has taken place for the similar company or brand. Thus the third party transactions needs to be checked for reference purpose.

(ii) DIrect Price Comparision : This is equity based valuation approach wherein financial market trends are being looked into for determined brand equity.

(b) Cost Based Approach :

Under this method, the cost which is actually incurred are taken into consideration hence it may includes CAPEX Cost, historical cost in terms of promotional activities, advertisement, registration and cost incurred for trader mark or copy right or acquiring intellectual property Cost.

Therefore, there two methos to be taken in to consideration i.e. Replacement Cost and Recreation Cost for the same business entity.

(c) Income Based Approach :

Under this approach, we need to carefully determine the future net earnings or future potential earnings from the brand. Again, there are following menthods to be used under this approach i.e.

(i) Discounted Cash flow

(ii) Royalty Relief Method which includes that of royalty to be paid for use of intellectual property in terms of use of Trade Mark, Copy right etc.

(iii) Price premium method, under this the extra premium being charged and valued for calculationo of the Brand vlaue.

Critical aspects to be considered in computing Brand value:

While computing Brand value, we need to consider critical aspects which has direct and indirect connection in valuation of the brand such as

1. Non availability of historical cost for big organisation

2. Deteriation of the value of the assets due to wear and tear i.e. Depreciation

3. Non availability of similar organisation and similar scale of opertation in valuing brand.

4. Furture estimation is another challenges in valuing brand.

Answer - 2

There are following factors which affects in determining value of financial options :

1. Strick Price of options : It is also called excercise price, so it the price at which the call owner can purchase the options or stock, for example, one is intended to and exercise the option to pay $ 100 in stead of say $ 200

2. Stock price currently traded : The stock is being currently traded and under this option, the premium keeps fluctuates with the price of the underlying assets or stock.

3. Expiration time, the call or put would be more worthy when the longer is the expiration time. Say, if the stock is traded at $ 100 today may fetch additonal premium if the same is exercised after long period.

4. Risk free interest rate, it is to be rembered that if the interest rates rise, then the call options may also rise, thus additonal interest are being earned out of the timely excercise of the options.

5. Option type; the value of options depends on the type of options to be excercised i.e. either Pur or call options, hence it purely depends on the market price. It therefore includes Stock options, commodity options, future options, regular options etc.