Page 60 - Calculating Lost Profits
P. 60
Considerations in Selecting a Prejudgment Interest Rate
Courts have considered several factors in determining the appropriate rate to use in a prejudgment inter-
est calculation. Depending on the case venue, prejudgment interest rates could be any of the following:
A risk-free rate
The defendant’s cost of unsecured borrowing
The plaintiff’s cost of unsecured borrowing
The plaintiff’s cost of capital or cost of equity
The prime rate in effect
A statutory rate set by the court or a statute specified by a governing body
The following is information on some of the more common rates used.
Risk-Free Rate
A risk-free rate (for example, Treasury rates) compensates a plaintiff for the passage of time but does
not account for risk associated with the cash flow or income stream. Use of a risk-free rate is often a re-
sult of considerations such as the following:
A plaintiff may have delayed the proceedings. fn 14
There has been no proof of a plaintiff borrowing monies, when those loans would have been paid
off or unnecessary were the damages amounts to have been received earlier by the plaintiff. fn 15
Post-judgment interest applies a risk-free rate ("a rate equal to the weekly average 1-year con-
stant maturity Treasury yield for the calendar week preceding the date of the judgment." fn 16 fn 17
)
Although courts frequently use the one-year Treasury bill rate when awarding prejudgment interest us-
ing a risk-free rate, it may be appropriate to match rates from different Treasury securities, of different
maturities, to align with the timing of different cash flows or income streams in a lost profits calculation.
fn 14 Enzo Biochem, Inc. v. Applera Corp., No. 3:04cv929 (JBA), 2014 U.S. Dist. LEXIS 372 (D. Conn. Jan. 3, 2014).
fn 15 Laitram Corp. v. NEC Corp., 115 F.3d 947, 955 (Fed. Cir. 1997). Apple, Inc. v. Samsung Elecs. Co., 926 F. Supp. 2d 1100, 1107–
1108 (N.D. Cal. 2013).
fn 16 Judiciary and Judicial Procedure, U.S. Code (USC) 28, Section 1961.
fn 17 Monsanto Co. v. Slusser, No. 4:10 CV 75 DDN, 2013 U.S. Dist. LEXIS 45386 (E.D. Mo. Mar. 29, 2013).
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