July 03, 2019 Articles

Country Risk and Valuation in Cross-Border Litigation

Risk—it doesn’t only belong in the discount rate.

By Jennifer Vanderhart

Cases involving cross-border litigation often require the valuation of an asset. Broadly, there are three methods to assess the market value of an asset. One approach is the income approach, which is based on projecting the cash flows of an asset into the future and discounting to the present. The underlying economic principle of an income approach is that the value of an asset is based on the expected net cash flow that the asset will produce, discounted to reflect the time value of money and risk. The second approach is the market approach. This approach often relies on available market prices of comparable assets or businesses that were sold under comparable circumstances. A third valuation approach, which will not be discussed in this article, is the cost approach, a non-market method that considers the accounting concept of book value, replacement cost, or amount invested to calculate value. I use the term “asset” broadly to refer to a specific asset, whether tangible or intangible, all assets of a business, the loss of an opportunity, the impact of specific conduct, etc.

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