What is the Greenfield method and when is it used for intangible valuation?

Full Explanation

The Greenfield method is an income approach variant that isolates the value of a single intangible asset by imagining a new business built around it. The premise is: if you owned only this one asset (say, an FCA licence or a broadcast spectrum right) and had to build a company from nothing else, what would the enterprise be worth? The projected cash flows reflect the ramp-up period needed to hire staff, acquire customers, develop supporting technology, and reach steady-state operations. Because the business starts from zero, early-year cash flows are typically negative or minimal, with profitability emerging over time. The Greenfield method is most commonly used for contractual or regulatory assets where the asset itself is the right to operate — broadcast licences, gaming licences, mineral rights, airport landing slots, and franchise agreements. It is also used for wireless spectrum, taxi medallions, and government concessions. The method captures the barrier-to-entry value of the asset: if the licence takes three years and significant investment to obtain, the Greenfield DCF reflects that time and cost. The discount rate applied is typically high, reflecting the start-up risk inherent in the model. The Greenfield method is less commonly used for assets like customer relationships or technology because the MPEEM and RFR methods are more practical for those asset types.

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