Investopedia explains '25% Rule'
1. Municipal governments looking to fund projects through bond issues have to make assumptions about the revenue they expect to bring in, which in turn will allow them to support bond payments. If revenue falls short of expectations those municipalities may not be able to make bond payments, which can hurt their credit rating. Municipal bond holders want to make sure that the issuing authority has the capacity to pay without getting in too deep.
2. Setting the value of intellectual property is a complex matter. The 25% rule does not closely define what "gross profit" includes, which creates ambiguity in the valuation calculation. Because it's a hard-and-fast rule, it does not take into account the costs associated with marketing the product. For example, the holder of a copyright will receive a 25% royalty, though the party doing the selling usually incurs the cost of creating demand in the market through advertising.
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