Royal Sheffield Motorcycle Has a Motorcycle That It Sells for Military

Royal Sheffield Motorcycle has a motorcycle that it sells for military application which is branded Loyal Red. Royal Sheffield bought the brand during World War II. The British military has decided, however, to discontinue using the motorcycle, and Royal Sheffield believes that its Loyal Red brand of motorcycles may be impaired. Royal Sheffield estimates that during the first year, the Loyal Red brand should result in ₤50 million. The risk-free rate is 3.5 percent while the risk premium of the first year cash flows is 2.5 percent. However, there is considerably more variability in the second and final year of cash flows. For each ₤5 million in cash flows after the second year, there is an increase in the risk premium of 50 basis points. Estimated cash flows for year two are ₤25 million. Royal Sheffield's applicable tax rate is 35 percent. At the end of year two, Royal Sheffield estimates that it can sell Loyal Red for ₤10 million. What is the value in use of the Loyal Red Brand?