Page 7 - Economic Damage Calculations

Contents

Chapter 1 — Introduction.................................................................................................................................... 9

The Concept of Time Value of Money ............................................................................................................... 9

Chapter 2 — Overview Of Time Value Of Money .......................................................................................... 11

Figure 2-1 ...................................................................................................................................................... 12

Use of a Mid-Period Convention ...................................................................................................................... 13

Nominal Rates and Real Rates .......................................................................................................................... 13

Cash Flows and Variability ............................................................................................................................... 13

Figure 2-2 ...................................................................................................................................................... 13

Figure 2-3 ...................................................................................................................................................... 14

Figure 2-4 ...................................................................................................................................................... 15

Figure 2-5 ...................................................................................................................................................... 16

The Impact of Time .......................................................................................................................................... 16

Summary of Factors Considered by Discount Rates ........................................................................................ 17

Chapter 3 — Financial Principles for Estimating Discount Rates ................................................................. 18

Introduction ....................................................................................................................................................... 18

Types of Risk .................................................................................................................................................... 18

Estimating a Discount Rate ............................................................................................................................... 19

Figure 3-1 ...................................................................................................................................................... 19

Figure 3-2 ...................................................................................................................................................... 20

The Cost of Equity ........................................................................................................................................ 20

Example Discount Rate Implementations ......................................................................................................... 23

Cost of Debt as a Discount Rate ................................................................................................................... 23

Weighted-Average Cost of Capital ............................................................................................................... 23

Chapter 4 — Present Value and Discount Rates Within a Litigation Context ............................................. 25

Damages Calculation Contexts and Measures .................................................................................................. 25

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