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the property, the term of the lease, the market rate of rent for
similar properties, and any risk factors that could affect
receipt of payments.
A patent is an exclusive right to make, use, and sell a
patented item. As in the case of a leasehold, the payment stream
available to the holder of a patent is valued by quantifying a
variety of factors to reach an appropriate discount or
capitalization rate. Such elements include the age of the
patent, its economic and legal life, the income it generates, the
products with which the underlying item competes, the risks of
the relevant industry, and the status of the economy.
A royalty is the income received from another for the
other’s use of property, and the term is usually employed in
reference to mineral rights, copyrighted works, trademarks, and
franchise interests. The value of a right to royalty payments is
again based upon the particular characteristics and risks
associated with the payment stream, taking into account the
annual income produced, the length of the agreement’s term, the
payment history, the possibility of sales or volume reduction
with respect to the underlying asset, any pertinent governmental
and industrial restrictions, and the nature of the underlying
asset (including the quantity and quality of reserves for mineral
and oil interests).
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