Page 12 - Economic Damage Calculations

The concept of the time value of money defines the value of money at one point in time as compared to
the value of the money, including the promise or expectation of such, at some other point in time. This
concept is within the purview of financial experts, accountants, and economists (hereafter referred to as
"experts"), all of whom may find themselves tasked with the conversion of values across time periods.
For example, a financial instrument may be required to be reported on a balance sheet at its present val-
ue. Or a business may be valued as the sum of the present value of expected future cash flows to be gen-
erated by the business. These and other applications may also be seen in the context of legal disputes.
For example, consider the event when a company has experienced lost profits as a result of a breach of
contract. The lost profits may be from the past or the future.

In a transactional context, the price paid for a business is likely to be influenced by the negotiations of a
specific transaction, with a host of issues specific to the transaction’s context affecting the negotiated
value. Similarly, financial computations and values related to a dispute, such as in an award of economic
damages, can yield different results given the potential for small but impactful inputs and assumptions—
even with seemingly similar fact sets.

In such cases, courts are often tasked with awarding an exact amount to a plaintiff as of the date of
judgment. Circumstances require the trier of fact, as well as experts and legal counsel, to evaluate the
facts pertaining to the matter in question. For example, an expert may be engaged to opine about the
measure of damages such as lost profits or lost business value, the magnitude of the lost income stream,
the duration of the damage period, and the appropriate discount rate to apply to determine the present
value of the damages. Effectively accounting for and articulating these subtleties can have a profound
impact on the amount of a judgment in litigation. In the course of the expert’s development of the bases
for these opinions, the objective remains the same—to make the plaintiff whole for any losses sustained
as of result of the defendant’s alleged misconduct.

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