Cost of capital in litigation : application and examples by Shannon P. Pratt

By Shannon P. Pratt

Praise for ''Cost of Capital in Litigation: purposes and Examples''

''After revising their latest textual content, ''Cost of Capital: functions and Examples,'' the authors have endeavored to extend their therapy of the topic and additional discover the position of price of capital within the courts. Addressing a variety of equipment for calculating price and diversified criteria of price, the authors clarify how courts may perhaps fluctuate of their judgements in response to the subject, jurisdiction, or on hand proof. This new compilation is a vital contribution to the sphere of valuation and should function an imminently valuable source for legal professionals and judges. Shannon Pratt and Roger Grabowski have supplied one more considerate, necessary, and ideal source for all practitioners drawn to how appraisers and courts have, and may, arrive at value.''? --From the Foreword by means of David Laro, pass judgement on, usa Tax court docket

''''Cost of Capital in Litigation'' is a truly worthy source for litigators confronted with valuation disputes regarding an review of discounted funds flows. within the zone with which i'm such a lot familiar--Delaware valuation law--it is thorough and insightful. extra very important to me, its introductory fabric properly lays out the conceptual constitution of the valuation factor, and the remainder chapters assemble plenty of information regarding the therapy of the problem in parts with which i'm much less common, (such as financial disaster legislation and family estate litigation).'' --Lawrence A. Hamermesh, Ruby R. Vale Professor of company and enterprise legislations, Widener collage tuition of legislations, Wilmington, Delaware

''''Cost of Capital in Litigation'' comprehensively offers with a tough topic, mentioning universal grounds in addition to variations between specialists within the therapy of this topic. it's a needs to first cease for the uninitiated within the topic and the last word list that each practitioner should still seek advice. quite important are the chapters focusing with the eyes of specialists at the remedy of rate of capital in particular parts of litigation. significantly, the authors alert the reader to these points of a few of the equipment for deciding on rate of capital which can differentiate one of the suitability of the tools in response to to be had information, the situations provided, and the felony factor below consideration.'' --Reeves Westbrook, Esq., associate and Chair of the Tax crew, Covington & Burling LLP

''Shannon Pratt and Roger Grabowski have consolidated info on very important theoretical valuation frameworks, functional purposes, and case legislation wanted by way of finance execs, lawyers, and judges in those hard instances. price of Capital in Litigation serves as an exceptional well-written reference on price of capital and valuation that i like to recommend to either practitioners and students.'' --Theodore Barnhill, Professor of Finance and Director of the worldwide and Entrepreneurial Finance examine Institute, The George Washington college

''Valuation in litigation settings calls for cautious research, sturdy facts, and defensible positions. fee of Capital in Litigation information the nuances and refined yet serious parts of crafting a defens-ible place for specialists, legal professionals, and others who have to know the way and why valuation circumstances are received and lost.'' --Hal Heaton, Professor of Finance, Marriott tuition of administration, Brigham younger college

''Discount premiums are frequently an important elements in calculating damages. Even small adjustments in those numbers could have huge results at the quantities in dispute--and the importance of damages received or misplaced. expense of Capital in Litigation explains the underlying monetary idea. It then deals separate chapters elaborating on cost of go back ways of their broadly assorted forensic contexts. this beneficial compendium even contains an summary of fee of capital questions to be used via lawyers and their monetary specialists. No company litigator might be with no it.'' --Peter V. Baugher, Esq., companion, Schopf & Weiss LLP

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Example text

Beyond yea r 3, ba sed on the business’s performa nce a nd industry a nd overa ll economic ex pectations, 5% average grow th in net cash flow appears to be a reasonable estimate of sustainable long-term grow th. 3. The cost of capital for this investment is estimated to be 12% . 11) PV $100 1 0 12 $120 $140 1 0 12 3 $147 $100 $120 $140 0 07 1 12 1 2544 1 4049 1 4049 $2 100 $89 30 $95 66 $99 65 1 4049 $89 30 $95 66 $99 65 $1 494 77 $1 779 38 1 0 12 2 $140 1 0 05 0 12 0 05 1 0 12 3 Thus, the estimated value of this investment is $1,779.

Let us take these same assumptions and put them into a discounting model. For simplicity, w e w ill only use three periods for the discrete projection period, but it w ould not make any difference how many discrete projection periods w e used. 12) PV $100 1 0 13 $100 1 03 $100 1 03 1 0 13 3 $109 27 $100 $103 $106 09 0 10 1 4429 1 13 1 2769 1 4429 $1092 73 $88 50 $80 66 $75 53 1 4429 $88 50 $80 66 $73 53 $757 31 $1 000 1 0 13 2 2 $100 1 03 3 0 13 0 03 1 13 3 E1C01 09/04/2010 Page 19 19 Cost of Capital Basics This ex ample, show ing the equivalency of using the cost of capital in either the discounting or the capitalizing model, w hen certain key assumptions are met, demonstrates the point that ca pita lizing is really just a shorthand form of discounting.

S. S. , the Wall Street Journal or the New Yo rk Times) as of the valuation date and find the yield on a bond originally issued for 30 years w ith approx imately 20 years left to maturity. The Federal Reserve Statistical Release tracks 20-year yields. gov/ release/h15. The St. Louis branch of the Federal Reserve Bank also tracks 20-year yields. org/fred2/series/GS20. S. government bonds make interim interest payments, w hich results in their duration being less than their stated maturity. See Chapter 6 in Cost o f Capital: Applications and Examples, 4th ed.

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