Sunk Cost

The return that could have been earned by investing in the next best alternative of comparable risk. Opportunity cost of capital is the foundation for discount rates used in intangible asset valuations and investment decisions, ensuring that capital is allocated to its most productive use.

The weighted average cost of capital, representing the blended rate of return a company must earn on its assets to satisfy both debt holders and equity investors. WACC is used as the discount rate in DCF valuations and as a hurdle rate for investment decisions.

The computational expense of running a trained AI model to generate predictions or outputs in production. Inference costs directly impact the unit economics of AI-powered products and services, and are a key consideration in pricing, margin analysis, and the financial viability of AI deployments at scale.

The estimated cost to create an exact replica of an intangible asset as of the valuation date, using the same materials, standards, design, and technology that were originally employed. Cost of reproduction is one of two cost approach premises (alongside cost of replacement) and produces a higher value estimate because it includes costs associated with features that may no longer be necessary or efficient.

A valuation methodology that estimates the value of an asset based on the cost to reproduce or replace it, adjusted for obsolescence. The cost approach is frequently used to value internally developed intangible assets such as proprietary software and databases where market comparables are unavailable.

The estimated cost to create an intangible asset with equivalent utility to the subject asset as of the valuation date, using current materials, standards, design, and technology. Cost of replacement differs from cost of reproduction in that it does not replicate the exact original asset but rather achieves the same functional capability, thereby automatically eliminating curable functional obsolescence.

The total cost of acquiring a new customer, including marketing, sales, and onboarding expenses. Optimising the ratio of customer lifetime value to CAC (LTV:CAC) is a central challenge for growth businesses and a key metric scrutinised by investors.

The temporary dip in measured productivity that often follows a significant investment in new technology or organisational change, before long-term gains materialise. The productivity J-curve arises because intangible capital — such as learning, process redesign, and complementary innovations — takes time to build and deploy effectively.

What is the weighted average cost of capital (WACC)?

WACC is the average cost of all capital sources (debt and equity) a company uses, weighted by their proportions — it is the minimum return the company should generate to satisfy all investors.

How do you value technology assets in a business acquisition?

Technology assets are valued using the Relief from Royalty method (for licensed technology) or the Cost Approach (for proprietary software), considering obsolescence risk, remaining useful life, and competitive differentiation.

Can artificial intelligence systems be valued as intangible assets?

Yes. AI systems — including trained models, proprietary algorithms, and curated datasets — can be recognised and valued as intangible assets under both IFRS and US GAAP when they meet the standard recognition criteria.

When is the cost approach the most appropriate method for valuing intangibles?

The Cost Approach is most appropriate for intangible assets where value derives primarily from replacement difficulty rather than direct income generation — such as assembled workforce, internal software, databases, and training materials.