Frequently asked questions regarding REX ROYALTIES PRESENT VALUE
Q : What does the calculator show?
A : The REX-PV calculator allows a user to select:
The calculator will then show:
- The stream of revenues and therefore royalties from a specific issuer.
- The royalty rate agreed to be paid by the issuer.
- The number of years of royalty payments being acquired.
- The cost of buying the anticipated royalty payments.
The calculator will then show:
- The Present Value of the projected royalty payments with a zero discount.
- The Present Value of the projected royalty payments with an agreed discount reflecting the passage of time and ever-present uncertainties.
- The Rate of Return of the amount agreed to be paid for the royalty stream, assuming the payment is 100% cash and the payment was all in the final year.
- If the calculator user enters royalty payments anticipated for each of the number of years selected the Internal Rate of Return (IRR) will be able to be calculated and displayed.
Q : What is the benefit of the calculator for the owner of a royalty considering a sale?
A : If the seller enters the amount paid for the royalty and the amount and annual timing of royalties received the amount agreed to be accepted from the buyer of the royalty the IRR of the seller will be shown.
Q : Why would the owner of a royalty wish to sell the royalty for less than the amount of royalties projected to be paid?
A : Projections are not certainties. The payment by the seller to the owner of the royalty can result in the seller having a very high IRR for the period of time the royalty was held while the buyer also anticipates receiving a very high IRR during the period of his ownership.
Q :What if the buyer wants to pay part of the purchase price over time?
A : The seller can stipulate a minimum cash payment which is satisfactory plus the remaining balance, possibly with an interest factor included, can be in the assignment by the buyer of royalties from the issuer until an agreed amount is received by the seller.
Q: Would these issuer paid royalties be guaranteed by the buyer?
A: Such details of the trade are subject to negotiation between the parties. The requirement of guarantees will make the trade less attractive to the buyer and that could be reflected in the price or discount rate used in the negotiations.
Q :What is the tax impact of the trade for both the seller and the buyer?
A :That would depend on the jurisdiction and nationality of the parties and each should consult their tax advisors.
Q: Will REX assist buyers to find sellers of royalties?
A: At such time as royalties are, as we expect will be the case, Exchange Traded both buyers and sellers will be able to post their bids and offers of and for specific company royalties. Until then, we are available on a professional advisory basis.
Q :Who are most likely to be the buyers of royalties during the royalty payment period?
A :The most likely buyers will be the royalty issuing companies wishing to add to their profit by eliminating the contractual need to pay royalties. In the U.S. tax exempt organizations are also good prospects as they have a need for income and do not have to pay taxes thereon.
Q :Is it possible for royalty owners to borrow against their royalties?
A :There are no established lenders who have a program for accepting private company royalties as collateral. However, if the royalty has a record of payments and is issued by an established company it is very possible lenders would consider positively royalties as assets, which could be hypothecated.
Please let us have your questions and comments. We will never publicly identify those asking for information or making comments without their written permission. Arthur@REXRoyalties.com