Huddell Company purchased Goodman Medical Services LLC at the beginning of Year 1. One of the assets of Goodman is a pharmacy license issued by the city of New Orleans. These licenses are valuable, but they trade infrequently, and the last separate sale of a similar license was 10 years ago. Accordingly, Huddell has determined that an income approach would be necessary to determine the fair value of the acquired business license.

Because similar licenses are sometimes sublicensed, or rented, in exchange for a royalty fee based on total pharmacy revenue, Huddell can use a "relief-from-royalty" method to estimate the fair value of the license. Huddell has determined that the prevailing market royalty rate for such an arrangement is 2.0%. Using this approach, the fair value of the license is the present value of the after-tax royalties that Huddell is avoiding by owning the license. Huddell has generated the following inputs for use with the "relief-from-royalty" method:

- Royalty rate: 2.0% of total pharmacy revenue (before subtracting any expenses) - Discount rate: 14.0% - Expected pharmacy revenue in Year 1: $300,000 - Expected growth rate in pharmacy revenue each year for Years 2 through 5: 8% - Huddell expects rapid revenue growth for the next five years, but then the growth will slow to a sustainable long-term level. - Expected growth rate in pharmacy revenue each year after five years (Year 6 and beyond): 3.0% - Income tax rate: 30%

Using these data, estimate the fair value of the pharmacy license.

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