Which of the following is true regarding the traditional approach to estimating the fair value of an intangible asset?
A) The traditional approach requires the use of the risk-free rate of interest.
B) The traditional approach requires the use of various possible outcomes and their probability of occurrence.
C) The traditional approach requires the use of judgment in determining a risk-adjusted rate of interest.
D) The traditional approach requires the assumption that cash flows occur at the beginning of each period (an annuity due).

Question

Quizplus · Accepted Answer

The traditional approach to estimating the fair value of an intangible asset requires the use of judgment in determining a risk-adjusted rate of interest. This is because intangible assets, unlike tangible assets, do not have a readily observable market value. Therefore, the fair value of an intangible asset must be estimated using various inputs and assumptions, including the risk-adjusted rate of interest.

Which of the Following Is True Regarding the Traditional Approach