Methods, assumptions, and the documentation that makes a present-value calculation defensible.
Economic · 10 min read
Abstract
Future economic losses, whether lost earnings or the cost of future care, must be expressed as a single present value so they can be compared and awarded today. The present value depends on the projected stream of losses, the growth applied to that stream, and the discount rate used to bring it back to the present. This paper explains each component, the assumptions that drive the result, and the documentation that allows a present-value calculation to be examined and tested.
Key takeaways
Present value converts a future stream of losses into a single equivalent amount payable today.
The result is driven by three transparent inputs: the loss stream, its projected growth, and the discount rate.
Every assumption should be sourced and stated so the calculation can be reproduced and challenged.
Consistency between the growth and discount assumptions matters more than any single figure.