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Lost Profits

Questions from the NACVA Conference Regarding Discounting Lost Earnings for Self-Employed Individuals In June 2021, the author of this article made a virtual presentation at the NACVA and the CTI’s Business Valuation & Financial Litigation Hybrid & Virtual Super Conference. The presentation was “Estimating Economic Loss of the Self-Employed: Lost Profits or Lost Earning Capacity”. One of the attende ...

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Best Practices for Estimating the Company-Specific Risk

(Part IV of IV) This is the final article of the four-part series that sets forth best practices for estimating the company-specific risk premium. This discussion of the series summarizes best practices about the analyst’s conduct of the functional analysis as one component in developing the CSRP estimate. Introduction Valuation analysts (analysts) often apply income approach business valuation methods to v ...

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Book Review

Finance & Accounting for Lawyers, Second Edition, by Brian Peter Brining, JD, CPA BVR has just released Finance & Accounting for Lawyers, Second Edition, by Brian Peter Brining, JD, CPA. The purpose of this edition is to provide the reader, lawyers particularly, with a technical overview of accounting principles and methods so the knowledge can be applied in the practice of law. In the finance and v ...

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Operating in the Post-Coronavirus Period

What Do We Do Moving Forward in Time? The coronavirus and the events unleashed by the outbreak were unforeseeable to professionals preparing reports as of the end of 2019. What do we, as valuation and litigation support professionals, do moving forward in time when we are engaged to value a business? Here, the author, Ron Rudich, answers these questions. Gary R. Trugman wrote in his tome, Understanding Busi ...

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Lost Profits and Discount Rates

What Do the Courts Want? Finding the methodology for determining the appropriate discount rate in a lost profits case can be a convoluted journey. The numerator (the lost profits) may be adjusted through modeling. The denominator (the discount rate) may be a risk-free rate, a rate of return on investments, or the rate of return commensurate with generating the lost profits had no wrongful act occurred. And, ...

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Issues in Estimating

The Cost of Equity Capital (Part II of II) This is the second of a two-part series article focused on issues that arise estimating the cost of equity capital. In most forensic-related valuation analyses, one procedure that affects most valuations is the measurement of the present value discount rate. This discount rate analysis may affect the forensic-related valuation of private companies, business ownersh ...

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Issues in Estimating

The Cost of Equity Capital (Part I of II) This is the first of a two-part series article focused on issues that arise estimating the cost of equity capital. In most forensic-related valuation analyses, one procedure that affects most valuations is the measurement of the present value discount rate. This discount rate analysis may affect the forensic-related valuation of private companies, business ownership ...

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How Not to Use Duff & Phelps Data

A Discussion of Rover Pipeline, LLC v. 10.55 Acres of Land, More or Less, in Ashland County, Ohio, et al. “In God we trust. All others must bring data.” This famous saying has been attributed to various people, but it implies that when data is presented, the conclusion can be trusted. However, the Ohio District Court’s decision in Rover Pipeline, LLC v. 10.55 Acres of Land, More or Less, in Ashland County, ...

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The Discount Period for the Terminal Value

Is Not Debatable This article explains why the undiscounted terminal value as of a future date must be discounted back by (a) N – 0.5 years when the traditional perpetuity method with a mid-period convention is used, (b) N years when the traditional perpetuity method with an end-of-period convention is used, or (c) N years when an exit multiple is used. ...

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Book Review—Lost Profits Damages

Principles, Methods, and Applications Everett P. Harry, III and Jeffrey H. Kinrich assembled 45 authors, chosen for their expertise in lost profits damages, and contributed and co-edited this comprehensive lost profits damages “how to” book. The authors pay tribute to Robert L. Dunn, among others, for his vision in identifying the need for this book. The book marks an attempt by the authors to provide a sin ...

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Chapter 11 Bankruptcy

Unsecured Creditors: Risk and Cramdown Rates (Part II of II) This is the second of a two-part article, read Part I here. In October 2017, the Second Circuit Court of Appeals handed down its decision on cramdown interest rates in the matter In re: MPM Silicones, LLC. This decision has already stirred a great deal of discussion regarding cramdown interest rates to be paid secured creditors in Chapter 11 bankr ...

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Chapter 11 Bankruptcy

Unsecured Creditors: Risk and Cramdown Rates (Part I of II) This is the first of a two-part article. In October 2017, the Second Circuit Court of Appeals handed down its decision on cramdown interest rates in the matter In re: MPM Silicones, LLC. This decision has already stirred a great deal of discussion regarding cramdown interest rates to be paid secured creditors in Chapter 11 bankruptcy matters. Numer ...

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Should Business Appraisers “Normalize” Long-Term Treasury Rates When Building Equity Discount Rates?

Some valuation practitioners use a normalized risk-free rate in determining the cost of capital.  This can inflate the cost of equity by up to a couple of percentage points, which in turn depresses valuation multiples.  Is normalizing the risk-free rate a rational, reasonable practice?  In today’s guest post, Chris Mercer suggests the answer is an emphatic no. To read the full article in Mercer Capital's Fi ...

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Revisiting Modeling

For Calculating Future Lost Profits Robert Dunn and Everett Harry published their oft cited Modeling and Discounting Future Damages in 2002. The article laid out the process for assessing future lost profits and discounting them to present value. They argued modeling future losses reduced the uncertainty related to the loss calculation and therefore reduced the risk premium to be included in the discount ra ...

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Book Review—What It’s Worth

Hotel Business Value QuickRead’s Technical Editor, Roberto Castro, reviews BVR’s What It’s Worth: Hotel Business Value.  There are few resources available for business valuation professionals that focus on the valuation of hotels.  The “go to” reference books have been Stephen Rushmore, MAI and Erich Baum’s Hotels & Motels: Valuations and Market Studies, a 2001 Appraisal Institute publication, and David ...

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Valuation Expertise is Necessary to Navigate Chapter 11

Once a petition for Chapter 11 is filed with the bankruptcy court, the company usually undertakes a strategic review of its operations, including opportunities to shed assets or even lines of businesses.  The Chapter 11 reorganization process concludes when the bankruptcy court confirms a reorganization plan which specifies a reorganization value and which reflects the agreed upon strategic direction and ca ...

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Analyzing Lost Earning Capacity for the Self-Employed

Income of Partners and Owners of Pass-through Entities (Part II of II) This is the second part of a two-part article where the author discusses the methodology for assessing the lost earning capacity of a self-employed person. This article provides an overview for analyzing the lost earning capacity of the self-employed and discusses why this category of work provides unique assessment situations. In this s ...

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Analyzing Lost Earning Capacity for the Self-Employed

Income of Partners and Owners of Pass-through Entities (Part I of II) This is a two-part article where the author discusses the methodology for assessing the lost earning capacity of a self-employed person. This, basically, is the same as that for a traditional wage and salary worker. Even though the methodology is the same, assessing the data for the self-employed is different. The loss calculations are no ...

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The 76ers Will Make the 2015-16 Playoffs

Could that Opinion Survive a Daubert Challenge? (Part III of III) This is the third and final article of the series. Part I provided background for this thought exercise and identified the size of the hole the 76ers had to climb out of to make the playoffs. Part II addressed the path an expert might take to arrive at his or her opinion. This part addresses the implications of the thought exercise on valuati ...

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Lost Profits versus Lost Business Value

Differences Between the Two Values Damages remedies often focus on lost profits and lost business value, with such remedies typically calculated by financial experts. There continues to be a trend in the courts to preclude experts from testifying, or to disregard them altogether because their opinion does not meet the reasonable certainty standard. Either of these outcomes can be a devastating result for th ...

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