Income approach method

Windy Vega Marimon

Income approach method

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Income approach method

This method focuses on estimating the value of a business based on the future income streams it is expected to generate. Generally, it involves projecting the company's future earnings and discounting them to the present value using an appropriate discount rate. This method is particularly useful in companies with stable and predictable business models, where revenue projections can be made with some degree of certainty.

Processes related and mathematical formulas to the calculation of the value of technology using the selected method

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Future Income Projection Process

Discount rate

Identification of future revenues to be generated by the technology, estimation of annual revenue streams over a defined period of time, which can span several years. Observing factors such as market potential, expected demand, competition, technology lifecycle, and other important factors that may affect revenues.

Selection of an appropriate discount rate that reflects the risk associated with investing in the technology. This rate can be determined based on the company's cost of capital, the rate of return required by investors, or the specific risk associated with the technology in question.

Present value formula for future income streams

Discount rate formula

Where: VP is the present value of future income streams f_t is the income flow in the period r = discount rate n = the number of projection periods

Where: g= is the growth rate of income streams

How can companies create value from their innovation?

It could come from the development of new products that satisfy customer needs as much as possible, the optimization of internal processes within the company to maximize operational efficiency, competitive differentiation through innovations, either in marketing that make them unique in the market. Market extension through product adaptation to reach other places and the formation of strategic alliances that provide access to new technologies, knowledge, or complementary resources.

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