Page 69 - Calculating Lost Profits
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Figure 10.2. Taxes on Growth During Discounting Period
As shown in the preceding table, when a plaintiff will pay taxes on the income gained from investing the
judgment or settlement received (for example, at an ordinary income rate if the damages are in lieu of
ordinary income), a plaintiff will be worse off if an after-tax discount rate is not used. Moreover, the tax
rates paid by investors who make up the transactions that are the basis on which discount rates are esti-
mated may also need to be considered, insomuch as they define what investors expect as income in
compensation for an investment. These data are frequently used to estimate market-based discount rates.
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