Journal of Business Valuation and Economic Loss Analysis
Vol. 5 (2010) / Issue 1 / Articles
Risk-Adjusted Damages Calculation in Breach of Contract Disputes: A Case Study
Frank C. Graves, The Brattle Group
Bin Zhou, The Brattle Group
Melvin Brosterman, Stroock & Stroock & Lavan LLP
Quinlan Murphy, Stroock & Stroock & Lavan LLP
Abstract
Risk-adjusted valuation is well established in both theory and business practice. However, its implications are not always immediately apparent or intuitive in legal disputes such as breach of contract lawsuits. In particular, damages are often calculated by discounting the differences in cash flows between but-for (no breach) and actual (breach) worlds by a single discount rate. While widely used, this approach can produce incorrect valuation results. This paper provides a case study of a breach of an electricity tolling agreement to illustrate the more general valuation principle of discounting but-for and actual cash flows using two discount rates.
Recommended Citation
Graves, Frank C.; Zhou, Bin; Brosterman, Melvin; and Murphy, Quinlan (2010) "Risk-Adjusted Damages Calculation in Breach of Contract Disputes: A Case Study," Journal of Business Valuation and Economic Loss Analysis: Vol. 5 : Iss. 1, Article 4.
DOI: 10.2202/1932-9156.1092
Available at: http://www.bepress.com/jbvela/vol5/iss1/art4
No comments:
Post a Comment