Imputed Value
Categories: Company Valuation
See: Imputed Interest.
You enjoy spending your weekends spelunking. Each Sunday, you strap one of those miner’s lights to your head and wander through a warren of nearby caves. One day, you discover a skeleton, dressed in pirate garb, clutching a faded piece of parchment in its bony hand. Upon closer investigation, the tattered document turns out to be a map, with a big red “X” stamped in the middle.
You go to auction the map online. What price should you set as a reserve? In other words, what’s the minimum value you should expect for your treasure map?
With these questions, you are engaged in deciphering imputed value.
The phrase describes the estimated value of something where the actual value isn’t known. You're trying to put a specific, quantitative worth on something where there is no direct data either way.
The map might be a meaningless piece of paper. It might point to an immense treasure. It may represent a valuable historical document, regardless of whether a treasure exists or not. To determine its potential value, you have to compare your map with other similar artifacts, implying value based on that research.
In business terms, it can refer to an asset where no previous sale price is available. Think: if HBO wanted to value its rights to stream Game of Thrones reruns. Since the show's relationship to potential future viewers is unique, there's no direct precedent. It just has to look at other content valuations and make an educated guess.
Imputed value also comes up for intangible assets, like brand value or patents.
Related or Semi-related Video
Finance: What is Imputed Interest Rate?1 Views
Finance allah shmoop What is imputed interest rate Imputed guest
at or presumed based on x y and z that's
the foundation of an imputed interest rate and its chief
cheerleader Yep It's the i r s the tax people
those guys you just love to hear from Why Well
because taxes need to be collected Right We have pork
to buy for politicians Come on people Get with it
So we have a zero coupon bond here We bought
for five hundred bucks which comes do or pays off
in ten years for a thousand dollars on lee Remember
Zero coupon bonds don't pay any interest along the way
They just pay a one time end of period amount
which includes interest and principal The irs taxes Bondholders imputed
interest Yes like gains based on whatever interest rate is
imputed by the terms of the deal So in this
case remember that rule of seventy two thing so many
years to doubled about it into seventy two and all
that Yeah So in this case the money takes ten
years to double that's ten into seventy two paying seven
point two percent interest per year Compound it So the
irs would take as an imputed interest Five hundred box
times seven point two which is thirty six dollars of
taxable imputed interest games And they would take that each
year and you'd pay that each year on your taxes
So if you owned this bond and we're living in
a forty percent marginal tax bracket blue state which you
livin bitterly even though you got no cash interest from
this bond will you'd suffer a cash tax hit of
forty percent of thirty six or a bit under fifteen
dollars each year as you went along So that's the
bad news you pay the cash up front The good
news is that when the bond finally came do that
decade later for that grand well you have already paid
the taxes along the way And when taxes are already 00:02:01.504 --> [endTime] paid well we impute you'll be a happier camper