A listed company in a high technology industry has decided to value its intellectual capital using...

Under the Calculated Intangible Value (CIV) method, the idea is that intangibles (intellectual capital) explain the firm’s ability to earn excess returns over what would be expected from its tangible assets alone.

The value spread of $26m represents pre-tax excess earnings. CIV capitalises the after-tax excess earnings at the firm’s WACC:

Adjust value spread for tax (30%):

After-tax value spread=26×(1−0.30)=26×0.70=18.2 m\text{After-tax value spread} = 26 \times (1 - 0.30) = 26 \times 0.70 = 18.2\text{ m}After-tax value spread=26×(1−0.30)=26×0.70=18.2 m

Capitalise using WACC (8%):

CIV=18.20.08=227.5 m≈228 m\text{CIV} = \frac{18.2}{0.08} = 227.5 \text{ m} \approx 228\text{ m}CIV=0.0818.2​=227.5 m≈228 m

So the calculated intangible value (intellectual capital) of the company is $228 million, which matches Option A.