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Cost of Capital in Litigation

Cost of Capital in Litigation Applications and Examples

Name: Cost of Capital in Litigation
Brand: John Wiley & Sons
SKU: 9780470880944
Price: 1000.00 HKD
Availability: OutOfStock
Author: Shannon P. Pratt; Roger J. Grabowski
ISBN: 9780470880944

Edited by Shannon P. Pratt · Roger J. Grabowski

John Wiley & Sons October 2010

Specifications

ISBN-13: 9780470880944
Publisher: John Wiley & Sons
Publication: October 2010
Format: Hardback , 301 pages
Jurisdiction: International or US ? Countri(es) for reference only

Details

Praise for Cost of Capital in Litigation: Applications and Examples

"After revising their existing text, Cost of Capital: Applications and Examples, the authors have endeavored to expand their treatment of the subject and further explore the role of cost of capital in the courts.Addressing various methods for calculating value and different standards of value, the authors explain how courts may differ in their decisions based on the topic, jurisdiction, or available evidence. This new compilation is an important contribution to the field of valuation and will serve as an imminently helpful resource for attorneys and judges. Shannon Pratt and Roger Grabowski have provided yet another thoughtful,helpful,and excellent resource for all practitioners interested in how appraisers and courts have, and should, arrive at value."
—From the Foreword byDavid Laro, Judge, United States Tax Court

"Cost of Capital in Litigation is a very helpful resource for litigators faced with valuation disputes involving an assessment of discounted cash flows. In the area with which I am most familiar—Delaware valuation law—it is thorough and insightful. More important to me, its introductory material nicely lays out the conceptual structure of the valuation issue, and the remaining chapters gather lots of information about the treatment of the issue in areas with which I am less familiar, (such as bankruptcy law and domestic property litigation)."
—Lawrence A. Hamermesh, Ruby R. Vale Professor of Corporate and Business Law, Widener University School of Law, Wilmington, Delaware

"Cost of Capital in Litigation comprehensively deals with a difficult subject, pointing out common grounds as well as differences among experts in the treatment of this subject. It is a must first stop for the uninitiated in the subject and the ultimate checklist that every practitioner should consult.Particularly useful are the chapters focusing with the eyes of experts on the treatment of cost of capital in specific areas of litigation.Notably, the authors alert the reader to those aspects of the various methods for determining cost of capital that may differentiate among the suitability of the methods based on available data, the circumstances presented, and the legal issue under consideration."
—Reeves Westbrook, Esq., Partner and Chair of the Tax Group, Covington & Burling LLP

"Shannon Pratt and Roger Grabowski have consolidated information on important theoretical valuation frameworks, practical applications, and case law needed by finance professionals, attorneys, and judges in these challenging times. Cost of Capital in Litigation serves as a solid well-written reference on cost of capital and valuation that I recommend to both practitioners and students."
—Theodore Barnhill, Professor of Finance and Director of the Globaland Entrepreneurial Finance Research Institute, The George Washington University

"Valuation in litigation settings requires careful analysis, solid evidence, and defensible positions.Cost of Capital in Litigation details the nuances and subtle but critical elements of crafting a defensible position for experts, attorneys, and others who need to understand how and why valuation cases are won and lost."
—Hal Heaton, Professor of Finance, Marriott School of Management, Brigham Young University

"Discount rates are often crucial components in calculating damages.Even small changes in these numbers canhave large effects on the amounts in dispute—and themagnitude of damages won or lost.Cost of Capital in Litigation explains the underlying economic theory. It then offers separate chapters elaborating on rate of return approaches in their widely varied forensic contexts. Thishelpful compendium even includes an outline of cost of capital questions for use by attorneys and their financial experts. No business litigator should be without it."
—Peter V. Baugher, Esq., Partner, Schopf & Weiss LLP

About the Authors.

Foreword.

Preface.

Acknowledgments.

Notation System and Abbreviations Used in This Book.

CHAPTER 1: Cost of Capital Basics.

Introduction.

Components of a Capital Structure.

Characteristics of Cost of Capital.

Cost of Capital Equals the Discount Rate.

Net Cash Flow.

Discount Rate Is Not the Same as Capitalization Rate.

Cost of Capital Should Reflect Risk of the Investment.

CHAPTER 2: Estimating the Cost of Equity Capital and the Overall Cost of Capital.

Introduction.

Estimating the Cost of Equity Capital by the Build-up Method.

Estimating the Cost of Equity Capital by the Capital Asset Pricing Model.

Other Methods for Estimating the Cost of Equity Capital.

Overall (Weighted Average) Cost of Capital.

CHAPTER 3: Other Cost of Capital Considerations.

Introduction.

Standard of Value.

Handling Discounts for Lack of Marketability.

How the Cost of Capital Relates to the Excess Earnings Method of Valuation.

Adjusting the Discount Rate to Alternative Economic Income Measures.

Converting from After-Tax Rates to Pretax Rates.

CHAPTER 4: Cost of Capital in Estate and Gift Tax Matters.

Introduction.

Acceptance and Rejection of DCF.

Evaluation of Cash Flow Forecasts.

Equity Rate versus WACC.

Build-up, CAPM, or Something Else?

Cost of Equity.

Consistency of Data.

Courts Demand Supporting Detail.

Cost of Capital for a Regulated Company.

S Corporations.

Summary.

CHAPTER 5: Cost of Capital Considerations in Corporate Restructuring and Other Federal Tax Matters.

Introduction.

Legal Entity Valuations.

Intercompany Debt.

Worthless Stock.

Transfer Pricing Disputes.

Summary.

CHAPTER 6: Cost of Capital Included in Damage Calculations.

Introduction.

Why Discounting Is Necessary.

Is a Risk-free Discount Rate Appropriate?

Cost of Capital Is the Appropriate Risk-Adjusted Discount Rate.

Tax Effects.

Common Errors in Discounting Lost Profits.

Exclusion of Expert Testimony.

Summary.

CHAPTER 7: Cost of Capital in Intellectual Property Disputes.

Introduction.

Categories of Intellectual Property Disputes.

Cost of Capital Issues in Intellectual Property Disputes.

Court Guidance Regarding Discount Rate Selection.

Other Considerations.

Summary.

CHAPTER 8: Cost of Capital in Bankruptcy.

Introduction.

Cost of Capital for Debt: Cram Down Interest Rates.

Cost of Capital for Assets.

Cost of Capital for a Business Enterprise.

Summary.

CHAPTER 9: Cost of Capital in Appraisal and Fairness Cases.

Introduction.

Discounted Cash Flow in Delaware Law.

Capital Asset Pricing Model.

Components of Weighted Average Cost of Capital.

Build-up Method.

Additional Points.

Role of the Expert.

Summary.

CHAPTER 10: Cost of Capital in Family Law Matters.

Introduction.

Cost of Equity Capital versus WACC.

Capital Structure: Industry versus Business.

Solving for Market Value Weight Proportions and the Cost of Equity Capital.

The Hidden Impact of Rounding.

Cost of Capital in Family Law Courts.

Summary.

CHAPTER 11: Cost of Capital in Ad Valorem Taxation.

Introduction.

Unitary Property Cost of Capital by State.

Company Cost of Capital versus Asset Cost of Capital.

Assessed Value versus Market Value.

General Categories of Legislative Constraints That Necessitate Adjustments to the Cost of Capital.

Capital Structure.

Weighted Average Cost of Capital.

Ad Valorem Tax Adder.

Flotation Costs.

WACC versus WARA.

Cost of Capital in the Courts.

Summary.

CHAPTER 12: Cost of Capital in Regulated Industries.

Introduction.

Overview of Regulatory Decision-making Process.

Role for Cost of Capital.

Alternative Approaches to Setting Cost of Capital.

Specific Issues by Technique.

Other Methods Being Developed.

Railroad Cost of Capital Issues.

Summary.

CHAPTER 13: Questions to Ask Business Valuation Experts.

Introduction.

Examination Outline.

Appendix I Bibliography.

Appendix II International Glossary of Business Valuation Terms.

Index.

About the Author

Shannon P. Pratt, CFA, FASA, ARM, MCBA, CM&AA, referred to as the father of business valuations, is the author of several bestselling Wiley business valuation books and a sought-after speaker at business valuation industry conferences. He is the managing owner of Shannon Pratt Valuations, Inc., and has served as supervisory analyst for over 3,000 business valuation engagements in forty years and as an expert witness in numerous state and federal courts on contested business valuations.

Roger J. Grabowski is managing director of Duff & Phelps LLC. Roger has testified in court as an expert witness on the value of closely held businesses and business interests, matters of solvency, valuation, and amortization of intangible assets, and other valuation issues. He testified in the Northern Trust case, the first U.S. Tax Court decision that adopted the discounted cash flow method to value the stock of a closely held business with the discount rate based on the capital asset pricing model. Grabowski authors the annual Duff & Phelps Risk Premium Report.

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