CrFA Valuation & Damages Calculation Flashcards

In a commercial damages case, the mitigation doctrine requires that the plaintiff:

Answer: Take reasonable steps to reduce losses caused by the defendant's wrongful act

Plaintiffs have a legal duty to make reasonable efforts to minimize their damages; failure to mitigate can reduce the recoverable amount.

When normalizing earnings in a business valuation, a forensic accountant would most likely adjust for:

Answer: Above-market compensation paid to owner-employees

Owner-officer compensation that exceeds what an arm's-length replacement would require is added back and replaced with market-rate compensation to reflect true economic earnings.

In a personal injury lost earnings case, a forensic accountant must discount future lost wages to present value using:

Answer: A risk-free rate reflecting the time value of money

Future lost earnings are discounted using a risk-free rate because the wages would have been earned with certainty absent the injury, not at a speculative return.

Which method is typically used to select guideline public companies in the market approach to business valuation?

Answer: Identifying companies with similar SIC/NAICS codes, size, and business characteristics

Guideline companies are selected based on operational and financial comparability, including industry classification, revenue size, and business model similarity.

A royalty rate in an intellectual property damages analysis is most often determined using:

Answer: The Georgia-Pacific factors

The Georgia-Pacific factors provide a 15-factor framework courts use to determine a hypothetically negotiated reasonable royalty in patent infringement cases.

When forensic accountants calculate damages in a breach of contract case, they typically measure:

Answer: Expectation damages that place the plaintiff in the position they would have occupied had the contract been performed

Expectation damages aim to give the non-breaching party the economic benefit of their bargain by recreating the financial position they would have achieved.