Page 54 - Economic Damage Calculations

legislative-judicial risk. The risk to an entity and its financial performance that results from poten-
tial legislation or judicial developments. For example, if a patent is found to be invalid that may
have a significant impact on pricing, unit sales, and profits earned by a company.

lost business value. A measure of damages that is based on the concept that a business was worth
some amount prior to the damages event, but that as a result of the damages event, some or all of
that value was lost. The lost or diminished value is then measured as the value before less the
value after. In some situations, extrinsic factors not related to the damages event may complicate
a lost business value calculation.

lost profits. A method of estimating damages in which the plaintiff is compensated for the profit not
realized due to the alleged actions of the defendant.

macro-economic factors. Factors relating to the economy in general that have the potential to im-
pact the results of an entity.

modified CAPM. A model similar to the build-up model, except that the equity risk premium is
multiplied by beta in order to consider industry-specific risk.

nominal interest rate. Interest rate including inflation. fn 15

post-judgment interest. A rate of interest applied to an award in litigation to compensate for the use
of monies between a date before trial and the judgment date.

prejudgment interest. A rate of interest applied to an award in litigation to compensate for the use
of monies between a date before trial and the judgment date.

present value. The value, as of a specified date, of future economic benefits or proceeds from sale,
calculated using an appropriate discount rate. fn 16

rate of return. An amount of income (loss) or change in value realized or anticipated on an invest-
ment, expressed as a percentage of that investment. fn 17

real interest rate. Interest rate expressed in terms of real goods; that is, the nominal interest rate mi-
nus the expected inflation rate. fn 18

reasonable certainty. Damages are to be proven with reasonable certainty and without undue con-
jecture or speculation. However, mathematical precision or absolute certainty is not generally re-
quired for damages measurement. Some courts have ruled that the fact of damages must be
proved with reasonable certainty, but the amount of damages may be estimated.

fn 15 Stephen Ross, Randolph Westerfield, and Jeffrey Jaffe, Corporate Finance. 7th ed. (New York: McGraw-Hill, 2005).

fn 16 SSVS No. 1.

fn 17 Ibid.

fn 18 Ross, Westerfield, and Jaffe, Corporate Finance. 7th ed.

52 © 2020 Association of International Certified Professional Accountants