CLP CLP Licensing Valuation & Financial Analysis 1

Question 1

Which valuation method estimates the value of a license by comparing it to similar transactions in the marketplace?

Accepted Answer

Market comparable approach

Answer

The market comparable approach values a license by referencing similar arm's-length transactions in the market.

Question 2

The '25% rule of thumb' in licensing suggests the licensee should pay the licensor approximately what share of gross profits as a royalty?

Accepted Answer

25%

Answer

The 25% rule of thumb holds that a licensee should pay roughly 25% of expected gross profits to the licensor as a royalty.

Question 3

What does NPV stand for in the context of licensing deal financial analysis?

Accepted Answer

Net Present Value

Answer

NPV (Net Present Value) discounts future cash flows to their present-day worth to evaluate a deal's financial merit.

Question 4

A running royalty in a license agreement is best described as:

Accepted Answer

A percentage of sales paid periodically over the license term

Answer

A running royalty is a per-unit or percentage-of-revenue payment made to the licensor over time as the licensee sells products.

Question 5

Which financial metric measures the minimum sales volume a licensee must achieve before royalty payments cover a fixed upfront license fee?

Accepted Answer

Break-even point

Answer

The break-even point is the sales volume at which cumulative royalties equal the upfront fee investment.

(CLP) Certified Licensing Professional Practice Test