Economic damage calculations involve calculating any potential risks and uncertainties that can occur over future periods of time. In order to address these considerations, a discount rate is applied to factor in potential loss. At HSNO, we can assist your company in developing a unique discount rate based on all aspects of your individual company. Once the rate is calculated, we will help you apply the discount rate to determine your company’s potential loss.
When determining a discount rate, it is important to factor in the time value of money and any other financial principles that should be included. You must also consider the types of damage computations that may be utilized that would necessitate a discount rate.
HSNO has trained and experienced forensic accountants to help you determine and set up a discount rate to account for any potential, yet uncertain, risks or losses your company might incur. The courts have set up many methods of doing this that are acceptable; however, the rules must be followed to maintain legal validity. Common approaches that are accepted by the courts are the capital markets approach and the expected cash flows approach. The capital markets approach is used when the discount rate is generally higher to reduce the risk in the damages model, and the expected cash flows approach is used when a lower discount rate is used because certain risks have already been accounted for in the modeled cash flows. Either approach can be utilized; it all depends on your company’s circumstances regarding the economic damages calculation. Risk will be factored in somewhere, and that is what is truly important.
Case law regarding discount rates is strictly followed by all of our forensic accountants, and they will be able to assist you with any questions you may have about discount rates and how to calculate them.