Intangible Assets and Cost of Capital: An Application for a Technology Utilizing Firm

Intangible assets, which are not physical in nature, play a very important role in today´s firms. However, current financial statements provide very little information about these assets. Thus, managers are constrained to recognize and report them that lead to flawed information about a firm´s cost of capital. This is the opportunity cost of an investment; that is the rate of return, which a company would otherwise be able to earn at the same risk level as the investment that has been selected. This paper examines the linkage between intangible assets and the cost of capital of a technology-utilizing firm. First, the basic concepts about intangible assets are presented. Then, the relationship between intangible assets and cost of capital are explained. Finally, an application in a technology-utilizing firm is carried out, the results are evaluated, and future recommendations are proposed.