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Financial Valuation: Applications and Models, + Website, 3rd Edition by James R. Hitchner

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Chapter 23

Business Damages

This chapter discusses legal principles and quantitative issues and methods related to determining business damages in litigation matters. It illustrates the differences between the estimation of value for a business valuation and the calculation of lost profit damages. The theory and practice described apply to both testifying experts (professionals who expect to testify as expert witnesses) and consulting experts (professionals who do not expect to testify but who will serve as consultants to attorneys). Only compensatory damages (lost profits and diminution of value) are discussed in this chapter. Benefit-of-the-bargain, recovery of out-of-pocket expenses, punitive damages, and other types of recovery allowable under the law are not discussed, nor are areas of the law with specific criteria for determining recoverable damages (such as patent infringement cases) addressed.

ROLE OF THE LAW AND FINANCIAL EXPERTS

The law drives all litigation matters, including damage issues. Case law and statutory law are the most important areas of the law that apply to financial experts.

Although financial experts are usually not attorneys and are not expected by their professional standards to know the law, attorneys frequently choose experts who have some knowledge of the law that applies to a particular litigation matter.

As a practical matter, the financial expert ...

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