We are doing some litigation support work for a law firm that represents a large publicly traded company. One of the issues is question is that our client was owned a significant sum of money from the opposing side (approx. $150 million) which was never received. What approaches would you use to quantify the economic loss to our client from having to forgo the use of the $150 for the past 12 months? Any thoughts? Thanks.
at minimum I would take their highest debt cost at market (as credit spreads have risen) ie if they have 10 years bond’s outstanding take the YTM. at the maximum you could justify is probably the company’s internal rate of return, which is the return the finance team would be able to provide for a given project, what type of return would justify taking on that risk?
MFE: Thanks for your thoughts. We have examined the company’s ROIC over the relevant 12 month period and it is less than their WACC. Given this, it seems that the greatest opportunity cost to not receiving the money would be the interest rate on their debt. I agree that this would be the miniumum, but since the company has had negative economic returns over this period, I guess this would be the maximum too. Any other thoughts?