TEA.16.4

Description

This article introduces the concept of terminal value as an economic loss beyond the loss of earning capacity, to self- employed individuals that are precluded from selling their businesses upon retirement due to a personal injury.  Terminal value represents the value of a business following a discrete stream of cash flows.  In the case of a self-employed individual, the discrete cash flows would be the lost earning capacity over the plaintiff’s working life, and the terminal value would represent the value of the business upon retirement.  The total economic loss would be the present value of the lost earning capacity plus the present value of the terminal value.  Terminal value is a valid economic loss when a business earns an economic profit and the economic profit is transferrable to a hypothetical buyer.  Because terminal value represents the value of a business, it is calculated using business valuation methodology which entails discounting at a risk-adjusted discount rate.   In cases where a business earns transferrable economic profits, ignoring terminal value will underestimate the economic loss to the self-employed plaintiff.