© steven j. willis 2006 1
TRANSCRIPT
© Steven J. Willis 2006 1
FINANCIAL CALCULATIONS FOR
LAWYERS
Lesson OneIntroduction
“Why Lawyers Need to Understand Finance”
FINANCIAL CALCULATIONS FOR
LAWYERS
Lesson OneIntroduction
“Why Lawyers Need to Understand Finance”
© Steven J. Willis 2006 2
Why Lawyers Need to Understand Finance
Finance is not just for accountants and tax lawyers.
© Steven J. Willis 2006 3
Why Lawyers Need to Understand Finance
Finance is not just for accountants and tax lawyers.
Learning finance is
important for every lawyer. Learning finance is
important for every lawyer.
© Steven J. Willis 2006 4
Why Lawyers Need to Understand Finance
Finance is not just for accountants and tax lawyers.
Learning finance is
important for every lawyer. Learning finance is
important for every lawyer.
Finance involves many aspects of the law . . . from torts and family law, to
trial practice, and personal purchases.
Finance involves many aspects of the law . . . from torts and family law, to
trial practice, and personal purchases.
© Steven J. Willis 2006 5
Why Lawyers Need to Understand Finance
But, the question of the moment is:
© Steven J. Willis 2006 6
Why Lawyers Need to Understand Finance
Why must you learn it?Why must you learn it?
But, the question of the moment is:
© Steven J. Willis 2006 7
Why Lawyers Need to Understand Finance
• Consider some examples.
© Steven J. Willis 2006 8
Why Lawyers Need to Understand Finance
• Tort Law– Personal Injury Case
© Steven J. Willis 2006 9
Why Lawyers Need to Understand Finance
• Tort Law– Personal Injury Case
Lost wages involve a stream of income.
Lost wages involve a stream of income.
© Steven J. Willis 2006 10
Why Lawyers Need to Understand Finance
• Tort Law– Personal Injury Case
This is called an annuity: any series of payments.
This is called an annuity: any series of payments.
Lost wages involve a stream of income.
Lost wages involve a stream of income.
© Steven J. Willis 2006 11
Why Lawyers Need to Understand Finance
• Tort Law– Personal Injury Case
This is called an annuity: any series of payments.
This is called an annuity: any series of payments.
Lost wages involve a stream of income.
Lost wages involve a stream of income.
© Steven J. Willis 2006 12
Why Lawyers Need to Understand Finance
• Tort Law– Personal Injury Case
This is called an annuity: any series of payments.
To value the loss, an expert (or the lawyer) must compute the present value today of
the future loss.
To value the loss, an expert (or the lawyer) must compute the present value today of
the future loss.
Lost wages involve a stream of income.
© Steven J. Willis 2006 13
Why Lawyers Need to Understand Finance
• Tort Law– Personal Injury Case
This is called an annuity: any series of payments.
To value the loss, an expert (or the lawyer) must compute the present value today of
the future loss.
To value the loss, an expert (or the lawyer) must compute the present value today of
the future loss.
Lost wages involve a stream of income.
Who might be a forensic accountant
or a forensic economist.
Who might be a forensic accountant
or a forensic economist.
© Steven J. Willis 2006 14
Why Lawyers Need to Understand Finance
• Tort Law– Personal Injury Case
This is called an annuity: any series of payments.
To value the loss, an expert (or the lawyer) must compute the present value today of
the future loss.
To value the loss, an expert (or the lawyer) must compute the present value today of
the future loss.
Lost wages involve a stream of income.
© Steven J. Willis 2006 15
Why Lawyers Need to Understand Finance
• Tort Law– Personal Injury Case
This is called an annuity: any series of payments.
To value the loss, an expert (or the lawyer) must compute the present value today of
the future loss.
To value the loss, an expert (or the lawyer) must compute the present value today of
the future loss.
Lost wages involve a stream of income.
In a typical jurisdiction, the Court or Jury will
award a lump sum today equal to the future loss.
In a typical jurisdiction, the Court or Jury will
award a lump sum today equal to the future loss.
© Steven J. Willis 2006 16
Why Lawyers Need to Understand Finance
• Tort Law– Personal Injury Case
This is called an annuity: any series of payments.
To value the loss, an expert (or the lawyer) must compute the present value today of
the future loss.
To value the loss, an expert (or the lawyer) must compute the present value today of
the future loss.
Lost wages involve a stream of income.
In a typical jurisdiction, the Court or Jury will
award a lump sum today equal to the future loss.
In a typical jurisdiction, the Court or Jury will
award a lump sum today equal to the future loss.
© Steven J. Willis 2006 17
Why Lawyers Need to Understand Finance
• Tort Law– Personal Injury Case
This is called an annuity: any series of payments.
To value the loss, an expert (or the lawyer) must compute the present value today of
the future loss.
To value the loss, an expert (or the lawyer) must compute the present value today of
the future loss.
Lost wages involve a stream of income.
In a typical jurisdiction, the Court or Jury will
award a lump sum today equal to the future loss.
In a typical jurisdiction, the Court or Jury will
award a lump sum today equal to the future loss.
CAUTION
© Steven J. Willis 2006 18
Why Lawyers Need to Understand Finance
• Tort Law– Personal Injury Case
This is called an annuity: any series of payments.
To value the loss, an expert (or the lawyer) must compute the present value today of
the future loss.
To value the loss, an expert (or the lawyer) must compute the present value today of
the future loss.
Lost wages involve a stream of income.
The typical Court or Jury will not award a series of payments to
replace the lost stream of income.
The typical Court or Jury will not award a series of payments to
replace the lost stream of income.
CAUTION
© Steven J. Willis 2006 19
Why Lawyers Need to Understand Finance
• Tort Law– Personal Injury Case
This is called an annuity: any series of payments.
To value the loss, an expert (or the lawyer) must compute the present value today of
the future loss.
To value the loss, an expert (or the lawyer) must compute the present value today of
the future loss.
Lost wages involve a stream of income.
The typical Court or Jury will not award a series of payments to
replace the lost stream of income.
The typical Court or Jury will not award a series of payments to
replace the lost stream of income.
CAUTION
© Steven J. Willis 2006 20
Why Lawyers Need to Understand Finance
• Tort Law– Personal Injury Case
This is called an annuity: any series of payments.
To value the loss, an expert (or the lawyer) must compute the present value today of
the future loss.
To value the loss, an expert (or the lawyer) must compute the present value today of
the future loss.
Lost wages involve a stream of income.
The typical Court or Jury will not award a series of payments to
replace the lost stream of income.
The typical Court or Jury will not award a series of payments to
replace the lost stream of income.
CAUTION
© Steven J. Willis 2006 21
Why Lawyers Need to Understand Finance
• Tort Law– Personal Injury Case
This is called an annuity: any series of payments.
Lost wages involve a stream of income.
The typical Court or Jury will not award a series of payments to
replace the lost stream of income.
The typical Court or Jury will not award a series of payments to
replace the lost stream of income.
CAUTION
A structured settlement between the parties may contractually agree upon such a stream; however, that is a
matter of settlement . . . not a court award.
© Steven J. Willis 2006 22
Why Lawyers Need to Understand Finance
• Tort Law– Personal Injury Case
This is called an annuity: any series of payments.
Lost wages involve a stream of income.
The typical Court or Jury will not award a series of payments to
replace the lost stream of income.
The typical Court or Jury will not award a series of payments to
replace the lost stream of income.
CAUTION
A structured settlement between the parties may contractually agree upon such a stream; however, that is a
matter of settlement . . . not a court award.
© Steven J. Willis 2006 23
Why Lawyers Need to Understand Finance
• Tort Law– Personal Injury Case
This is called an annuity: any series of payments.
To value the loss, an expert (or the lawyer) must compute the present value today of
the future loss.
To value the loss, an expert (or the lawyer) must compute the present value today of
the future loss.
Lost wages involve a stream of income.
In either case, you must be able to
compute the value today of the lost
stream of income:
1. to settle, or
2. to argue to a jury.
In either case, you must be able to
compute the value today of the lost
stream of income:
1. to settle, or
2. to argue to a jury.
CAUTION
© Steven J. Willis 2006 24
Why Lawyers Need to Understand Finance
• Tort Law– Personal Injury Case
This is called an annuity: any series of payments.
To value the loss, an expert (or the lawyer) must compute the present value today of
the future loss.
To value the loss, an expert (or the lawyer) must compute the present value today of
the future loss.
Lost wages involve a stream of income.
In either case, you must be able to
compute the value today of the lost
stream of income:
1. to settle, or
2. to argue to a jury.
In either case, you must be able to
compute the value today of the lost
stream of income:
1. to settle, or
2. to argue to a jury.
CAUTION
© Steven J. Willis 2006 25
Why Lawyers Need to Understand Finance
• Tort Law– Personal Injury Case
This is called an annuity: any series of payments.
To value the loss, an expert (or the lawyer) must compute the present value today of
the future loss.
To value the loss, an expert (or the lawyer) must compute the present value today of
the future loss.
Lost wages involve a stream of income.
In either case, you must be able to
compute the value today of the lost
stream of income:
1. to settle, or
2. to argue to a jury.
In either case, you must be able to
compute the value today of the lost
stream of income:
1. to settle, or
2. to argue to a jury.
CAUTION
© Steven J. Willis 2006 26
Why Lawyers Need to Understand Finance
• Tort Law– Personal Injury Case
This is called an annuity: any series of payments.
To value the loss, an expert (or the lawyer) must compute the present value today of
the future loss.
To value the loss, an expert (or the lawyer) must compute the present value today of
the future loss.
Lost wages involve a stream of income.
In either case, you must be able to
compute the value today of the lost
stream of income:
1. to settle, or
2. to argue to a jury.
In either case, you must be able to
compute the value today of the lost
stream of income:
1. to settle, or
2. to argue to a jury.
CAUTION
© Steven J. Willis 2006 27
Why Lawyers Need to Understand Finance
• Tort Law– Personal Injury Case
This is called an annuity: any series of payments.
To value the loss, an expert (or the lawyer) must compute the present value today of
the future loss.
To value the loss, an expert (or the lawyer) must compute the present value today of
the future loss.
Lost wages involve a stream of income.
Lesson 11
will teach you to compute the present value of an annuity.
Lesson 11
will teach you to compute the present value of an annuity.
© Steven J. Willis 2006 28
Why Lawyers Need to Understand Finance
• Tort Law– Personal Injury Case
This is called an annuity: any series of payments.
To value the loss, an expert (or the lawyer) must compute the present value today of
the future loss.
To value the loss, an expert (or the lawyer) must compute the present value today of
the future loss.
Lost wages involve a stream of income.
Lesson 11
will teach you to compute the present value of an annuity.
Lesson 11
will teach you to compute the present value of an annuity.
© Steven J. Willis 2006 29
Why Lawyers Need to Understand Finance
• Tort Law– Personal Injury Case
Hypothetically:
A 30-year old man was permanently disabled. He’d been earning $50,000 annually and
expected to continue until age 65.
Hypothetically:
A 30-year old man was permanently disabled. He’d been earning $50,000 annually and
expected to continue until age 65.
© Steven J. Willis 2006 30
Why Lawyers Need to Understand Finance
• Tort Law– Personal Injury Case
Hypothetically:
A 30-year old man was permanently disabled. He’d been earning $50,000 annually and
expected to continue until age 65.
Hypothetically:
A 30-year old man was permanently disabled. He’d been earning $50,000 annually and
expected to continue until age 65.
© Steven J. Willis 2006 31
Why Lawyers Need to Understand Finance
• Tort Law– Personal Injury Case
Hypothetically:
A 30-year old man was permanently disabled. He’d been earning $50,000 annually and
expected to continue until age 65.
Hypothetically:
A 30-year old man was permanently disabled. He’d been earning $50,000 annually and
expected to continue until age 65.
© Steven J. Willis 2006 32
Why Lawyers Need to Understand Finance
• Tort Law– Personal Injury Case
Hypothetically:
A 30-year old man was permanently disabled. He’d been earning $50,000 annually and
expected to continue until age 65.
Hypothetically:
A 30-year old man was permanently disabled. He’d been earning $50,000 annually and
expected to continue until age 65.
Which is either proved or stipulated.
© Steven J. Willis 2006 33
Why Lawyers Need to Understand Finance
• Tort Law– Personal Injury Case
Hypothetically:
A 30-year old man was permanently disabled. He’d been earning $50,000 annually and he
expected to continue until age 65.
Hypothetically:
A 30-year old man was permanently disabled. He’d been earning $50,000 annually and he
expected to continue until age 65.
© Steven J. Willis 2006 34
Why Lawyers Need to Understand Finance
• Tort Law– Personal Injury Case
Hypothetically:
A 30-year old man was permanently disabled. He’d been earning $50,000 annually and he
expected to continue until age 65.
Hypothetically:
A 30-year old man was permanently disabled. He’d been earning $50,000 annually and he
expected to continue until age 65.
Age at injury.
© Steven J. Willis 2006 35
Why Lawyers Need to Understand Finance
• Tort Law– Personal Injury Case
Hypothetically:
A 30-year old man was permanently disabled. He’d been earning $50,000 annually and he
expected to continue until age 65.
Hypothetically:
A 30-year old man was permanently disabled. He’d been earning $50,000 annually and he
expected to continue until age 65.
Projected age at retirement.
© Steven J. Willis 2006 36
Why Lawyers Need to Understand Finance
• Tort Law– Personal Injury Case
Hypothetically:
A 30-year old man was permanently disabled. He’d been earning $50,000 annually and he
expected to continue until age 65.
Hypothetically:
A 30-year old man was permanently disabled. He’d been earning $50,000 annually and he
expected to continue until age 65.
Thirty-five years would thus be his work-life expectancy.
© Steven J. Willis 2006 37
Why Lawyers Need to Understand Finance
• Tort Law– Personal Injury Case
He thus lost $50,000 per year for
35 years.
He thus lost $50,000 per year for
35 years.
Hypothetically:
A 30-year old man was permanently disabled. He’d been earning $50,000 annually and
expected to continue until age 65.
© Steven J. Willis 2006 38
Why Lawyers Need to Understand Finance
• Tort Law– Personal Injury Case
He thus lost $50,000 per year for
35 years.
We must compute the present value of an
annuity of $50,000 for 35 years.
We must compute the present value of an
annuity of $50,000 for 35 years.
Hypothetically:
A 30-year old man was permanently disabled. He’d been earning $50,000 annually and
expected to continue until age 65.
© Steven J. Willis 2006 39
Why Lawyers Need to Understand Finance
• Tort Law– Personal Injury Case
We must compute the present value of an
annuity of $50,000 for 35 years.
We must compute the present value of an
annuity of $50,000 for 35 years.
Lesson 11
will teach you to compute the present value of an annuity.
Lesson 11
will teach you to compute the present value of an annuity.
© Steven J. Willis 2006 40
Why Lawyers Need to Understand Finance
• Tort Law– Personal Injury Case
$50,000 times 35 years = $1,750,000$50,000 times 35 years = $1,750,000
We could do it this way.We could do it this way.
© Steven J. Willis 2006 41
Why Lawyers Need to Understand Finance
• Tort Law– Personal Injury Case
$50,000 times 35 years = $1,750,000$50,000 times 35 years = $1,750,000
We could do it this way.We could do it this way.
Lost wages
© Steven J. Willis 2006 42
Why Lawyers Need to Understand Finance
• Tort Law– Personal Injury Case
$50,000 times 35 years = $1,750,000$50,000 times 35 years = $1,750,000
We could do it this way.We could do it this way.
Work life expectancy
© Steven J. Willis 2006 43
Why Lawyers Need to Understand Finance
• Tort Law– Personal Injury Case
$50,000 times 35 years = $1,750,000$50,000 times 35 years = $1,750,000
We could do it this way.We could do it this way.
Simple answer.
© Steven J. Willis 2006 44
Why Lawyers Need to Understand Finance
• Tort Law– Personal Injury Case
We could do it this way.We could do it this way.
$50,000 times 35 years = $1,750,000$50,000 times 35 years = $1,750,000
But, that would be the
wrong answer!
© Steven J. Willis 2006 45
Why Lawyers Need to Understand Finance
• Tort Law– Personal Injury Case
Instead . . .
© Steven J. Willis 2006 46
Why Lawyers Need to Understand Finance
• Tort Law– Personal Injury Case
The Present Value of an Annuity Calculator will value this at $1,074,361.00.
The Present Value of an Annuity Calculator will value this at $1,074,361.00.
Instead . . .
© Steven J. Willis 2006 47
Why Lawyers Need to Understand Finance
© Steven J. Willis 2006 48
Why Lawyers Need to Understand Finance
NoticeNotice
© Steven J. Willis 2006 49
Why Lawyers Need to Understand Finance
NoticeNotice
50,000 in lost wages50,000 in
lost wages
© Steven J. Willis 2006 50
Why Lawyers Need to Understand Finance
NoticeNotice
35 years in work life
expectancy
35 years in work life
expectancy
© Steven J. Willis 2006 51
Why Lawyers Need to Understand Finance
NoticeNotice
A 3% discount rate
of interest.
A 3% discount rate
of interest.
© Steven J. Willis 2006 52
Why Lawyers Need to Understand Finance
NoticeNotice
The use of end mode.
The use of end mode.
© Steven J. Willis 2006 53
Why Lawyers Need to Understand Finance
NoticeNotice
The answer of 1,074,362.00
The answer of 1,074,362.00
© Steven J. Willis 2006 54
Why Lawyers Need to Know Finance
• Tort Law– Personal Injury Case
This Calculator used a 3% effective discount interest
rate, end mode, and no adjustment for taxes or inflation or productivity
increases.
This Calculator used a 3% effective discount interest
rate, end mode, and no adjustment for taxes or inflation or productivity
increases.
The Present Value of an Annuity Calculator will value this at $1,074,361.00.
The Present Value of an Annuity Calculator will value this at $1,074,361.00.
© Steven J. Willis 2006 55
Why Lawyers Need to Know Finance
• Tort Law– Personal Injury Case
This Calculator used a 3% effective discount interest
rate, end mode, and no adjustment for taxes or inflation or productivity
increases.
This Calculator used a 3% effective discount interest
rate, end mode, and no adjustment for taxes or inflation or productivity
increases.
The Present Value of an Annuity Calculator will value this at $1,074,361.00.
The Present Value of an Annuity Calculator will value this at $1,074,361.00.
You are likely thinking: what on earth does all
that mean?
You are likely thinking: what on earth does all
that mean?
© Steven J. Willis 2006 56
Why Lawyers Need to Know Finance
• Tort Law– Personal Injury Case
This Calculator used a 3% effective discount interest
rate, end mode, and no adjustment for taxes or inflation or productivity
increases.
This Calculator used a 3% effective discount interest
rate, end mode, and no adjustment for taxes or inflation or productivity
increases.
The Present Value of an Annuity Calculator will value this at $1,074,361.00.
The Present Value of an Annuity Calculator will value this at $1,074,361.00.
© Steven J. Willis 2006 57
Why Lawyers Need to Know Finance
• Tort Law– Personal Injury Case
This Calculator used a 3% effective discount interest
rate, end mode, and no adjustment for taxes or inflation or productivity
increases.
This Calculator used a 3% effective discount interest
rate, end mode, and no adjustment for taxes or inflation or productivity
increases.
The Present Value of an Annuity Calculator will value this at $1,074,361.00.
The Present Value of an Annuity Calculator will value this at $1,074,361.00.
© Steven J. Willis 2006 58
Why Lawyers Need to Know Finance
• Tort Law– Personal Injury Case
This Calculator used a 3% effective discount interest
rate, end mode, and no adjustment for taxes or inflation or productivity
increases.
This Calculator used a 3% effective discount interest
rate, end mode, and no adjustment for taxes or inflation or productivity
increases.
The Present Value of an Annuity Calculator will value this at $1,074,361.00.
The Present Value of an Annuity Calculator will value this at $1,074,361.00.
© Steven J. Willis 2006 59
Why Lawyers Need to Know Finance
• Tort Law– Personal Injury Case
This Calculator used a 3% effective discount interest
rate, end mode, and no adjustment for taxes or inflation or productivity
increases.
This Calculator used a 3% effective discount interest
rate, end mode, and no adjustment for taxes or inflation or productivity
increases.
The Present Value of an Annuity Calculator will value this at $1,074,361.00.
The Present Value of an Annuity Calculator will value this at $1,074,361.00.
© Steven J. Willis 2006 60
Why Lawyers Need to Know Finance
• Tort Law– Personal Injury Case
This Calculator used a 3% effective discount interest
rate, end mode, and no adjustment for taxes or inflation or productivity
increases.
This Calculator used a 3% effective discount interest
rate, end mode, and no adjustment for taxes or inflation or productivity
increases.
The Present Value of an Annuity Calculator will value this at $1,074,361.00.
The Present Value of an Annuity Calculator will value this at $1,074,361.00.
© Steven J. Willis 2006 61
Why Lawyers Need to Know Finance
• Tort Law– Personal Injury Case
This Calculator used a 3% effective discount interest
rate, end mode, and no adjustment for taxes or inflation or productivity
increases.
This Calculator used a 3% effective discount interest
rate, end mode, and no adjustment for taxes or inflation or productivity
increases.
The Present Value of an Annuity Calculator will value this at $1,074,361.00.
The Present Value of an Annuity Calculator will value this at $1,074,361.00.
© Steven J. Willis 2006 62
Why Lawyers Need to Understand Finance
To summarize
You will learn in this course:
1. What calculator to use and why.2. Why that interest rate3. Why that mode4. They impact of inflation5. The impact of productivity changes
You will learn in this course:
1. What calculator to use and why.2. Why that interest rate3. Why that mode4. They impact of inflation5. The impact of productivity changes
© Steven J. Willis 2006 63
Why Lawyers Need to Understand Finance
To summarize
You will learn in this course:
1. What calculator to use and why.2. What interest rate to use and why.3. Why that mode4. They impact of inflation5. The impact of productivity changes
You will learn in this course:
1. What calculator to use and why.2. What interest rate to use and why.3. Why that mode4. They impact of inflation5. The impact of productivity changes
© Steven J. Willis 2006 64
Why Lawyers Need to Understand Finance
To summarize
You will learn in this course:
1. What calculator to use and why.2. What interest rate to use and why.3. What mode and why.4. They impact of inflation5. The impact of productivity changes
You will learn in this course:
1. What calculator to use and why.2. What interest rate to use and why.3. What mode and why.4. They impact of inflation5. The impact of productivity changes
© Steven J. Willis 2006 65
Why Lawyers Need to Understand Finance
To summarize
You will learn in this course:
1. What calculator to use and why.2. What interest rate to use and why.3. What mode and why. 4. The impact of inflation5. The impact of productivity changes
You will learn in this course:
1. What calculator to use and why.2. What interest rate to use and why.3. What mode and why. 4. The impact of inflation5. The impact of productivity changes
© Steven J. Willis 2006 66
Why Lawyers Need to Understand Finance
To summarize
You will learn in this course:
1. What calculator to use and why.2. What interest rate to use and why.3. What mode and why. 4. The impact of inflation5. The impact of productivity changes
You will learn in this course:
1. What calculator to use and why.2. What interest rate to use and why.3. What mode and why. 4. The impact of inflation5. The impact of productivity changes
© Steven J. Willis 2006 67
Why Lawyers Need to Understand Finance
• Other examples will involve Family Law
© Steven J. Willis 2006 68
Why Lawyers Need to Understand Finance
• Family Law– You may compute the present value of
future alimony: to settle it in a lump sum.
– To value a business that must be divided or awarded to one spouse, with a comparable amount to another.
– To value a retirement account that must be split in a dissolution.
© Steven J. Willis 2006 69
Why Lawyers Need to Understand Finance
• Family Law– You may compute the present value of
future alimony: to settle it in a lump sum.
– To value a business that must be divided or awarded to one spouse, with a comparable amount to another.
– To value a retirement account that must be split in a dissolution.
© Steven J. Willis 2006 70
Why Lawyers Need to Understand Finance
• Family Law– You may compute the present value of
future alimony: to settle it in a lump sum.
– You may value a business that must be divided or awarded to one spouse, with a comparable amount to another..
– To value a retirement account that must be split in a dissolution.
© Steven J. Willis 2006 71
Why Lawyers Need to Understand Finance
• Family Law– You may compute the present value of
future alimony: to settle it in a lump sum.
– You may value a business that must be divided or awarded to one spouse, with a comparable amount to another.
– You may value a retirement account that must be split in a dissolution.
© Steven J. Willis 2006 72
Why Lawyers Need to Understand Finance
• Still other examples involve Property Law– To value future rents on property being
sold.
– To amortize a home loan.
• Contract Law– To set an interest rate or payment
schedule.
© Steven J. Willis 2006 73
Why Lawyers Need to Understand Finance
• Property Law– You may value future rents on property
being sold.
– To amortize a home loan.
• Contract Law– To set an interest rate or payment
schedule.
© Steven J. Willis 2006 74
Why Lawyers Need to Understand Finance
• Property Law– You may value future rents on property
being sold.– You may amortize a home loan.
• Contract Law– To set an interest rate or payment
schedule.
© Steven J. Willis 2006 75
Why Lawyers Need to Understand Finance
• And other examples involve Contract Law– To set an interest rate or payment
schedule.
© Steven J. Willis 2006 76
Why Lawyers Need to Understand Finance
• Contract Law– You may need to set an interest rate or
payment schedule.
© Steven J. Willis 2006 77
Why Lawyers Need to Understand Finance
• Contract Law– You may need to set an interest rate or
payment schedule.– You may need to compute the value of a
profits share.
© Steven J. Willis 2006 78
Why Lawyers Need to Understand Finance
• And, in your Personal Life
– To buy a car or house
– To save for a child’s education
– To plan for retirement
– In case you win the lottery, to value your winnings.
© Steven J. Willis 2006 79
Why Lawyers Need to Understand Finance
• Personal Life– You may want to buy a car or house.
– To save for a child’s education
– To plan for retirement
– In case you win the lottery, to value your winnings.
© Steven J. Willis 2006 80
Why Lawyers Need to Understand Finance
• Personal Life– You may want to buy a car or house.– To save for a child’s education.
– To plan for retirement
– In case you win the lottery, to value your winnings.
© Steven J. Willis 2006 81
Why Lawyers Need to Understand Finance
• Personal Life– You may want to buy a car or house.– To save for a child’s education.– To plan for retirement.
– In case you win the lottery, to value your winnings.
© Steven J. Willis 2006 82
Why Lawyers Need to Understand Finance
• Personal Life– You may want to buy a car or house– To save for a child’s education– To plan for retirement– Or . . . you may win the lottery, and then
you must value your winnings.
© Steven J. Willis 2006 83
Why Lawyers Need to Understand Finance
• Of course, many examples involve Tax Law
– Section 7872: below market loans
– Section 1272: original issue discount loans
– Section 1275: market discount loans
– Section 467: pre-paid or post-paid rent
– Section 461(h): to value the impact of deferred deductions
– The Schlude case: to value the impact of early accrual
© Steven J. Willis 2006 84
Why Lawyers Need to Understand Finance
• Tax Law– Section 7872: below market loans
– Section 1272: original issue discount loans
– Section 1275: market discount loans
– Section 467: pre-paid or post-paid rent
– Section 461(h): to value the impact of deferred deductions
– The Schlude case: to value the impact of early accrual
© Steven J. Willis 2006 85
Why Lawyers Need to Understand Finance
• Tax Law– Section 7872: below market loans– Section 1272: original issue discount
loans
– Section 1275: market discount loans
– Section 467: pre-paid or post-paid rent
– Section 461(h): to value the impact of deferred deductions
– The Schlude case: to value the impact of early accrual
© Steven J. Willis 2006 86
Why Lawyers Need to Understand Finance
• Tax Law– Section 7872: below market loans– Section 1272: original issue discount
loans– Section 1275: market discount loans– Section 467: pre-paid or post-paid rent
– Section 461(h): to value the impact of deferred deductions
– The Schlude case: to value the impact of early accrual
© Steven J. Willis 2006 87
Why Lawyers Need to Understand Finance
• Tax Law– Section 7872: below market loans– Section 1272: original issue discount
loans– Section 1275: market discount loans– Section 467: pre-paid or post-paid rent
– Section 461(h): to value the impact of deferred deductions
– The Schlude case: to value the impact of early accrual
© Steven J. Willis 2006 88
Why Lawyers Need to Understand Finance
• Tax Law– Section 7872: below market loans– Section 1272: original issue discount
loans– Section 1275: market discount loans– Section 467: pre-paid or post-paid rent– Section 461(h): to value the impact of
deferred deductions
– The Schlude case: to value the impact of early accrual
© Steven J. Willis 2006 89
Why Lawyers Need to Understand Finance
• Tax Law– Section 7872: below market loans– Section 1272: original issue discount
loans– Section 1275: market discount loans– Section 467: pre-paid or post-paid rent– Section 461(h): to value the impact of
deferred deductions– The Schlude case: to value the impact
of early accrual
© Steven J. Willis 2006 90
Why Lawyers Need to Understand Finance
• Tax Law– Section 7872: below market loans
– Section 1272: original issue discount loans
– Section 1275: market discount loans
– Section 467: pre-paid or post-paid rent
– Section 461(h): to value the impact of deferred deductions
– The Schlude case: to value the impact of early accrual
CAUTION
© Steven J. Willis 2006 91
Why Lawyers Need to Understand Finance
• Tax Law– Section 7872: below market loans
– Section 1272: original issue discount loans
– Section 1275: market discount loans
– Section 467: pre-paid or post-paid rent
– Section 461(h): to value the impact of deferred deductions
– The Schlude case: to value the impact of early accrual
Don’t be Alarmed!
CAUTION
© Steven J. Willis 2006 92
Why Lawyers Need to Understand Finance
• Tax Law– Section 7872: below market loans
– Section 1272: original issue discount loans
– Section 1275: market discount loans
– Section 467: pre-paid or post-paid rent
– Section 461(h): to value the impact of deferred deductions
– The Schlude case: to value the impact of early accrual
Don’t be Alarmed!
CAUTION
Unless you are taking the tax portion of this course, you need not understand tax law to understand financial
calculations.
Unless you are taking the tax portion of this course, you need not understand tax law to understand financial
calculations.
© Steven J. Willis 2006 93
Why Lawyers Need to Understand Finance
To summarize:
• Like it or not, lawyers need to understand financial calculations . . . in their personal lives and in their professional lives.
• It is not sufficient to rely on experts:
– Sometimes the client doesn’t have the money
– Plus, you need to understand how to communicate with the expert, how to examine him, and how to cross-examine him.
© Steven J. Willis 2006 94
Why Lawyers Need to Understand Finance
To summarize:
• Like it or not, lawyers need to understand financial calculations . . . in their personal lives and in their professional lives.
• It is not sufficient to rely on experts:
– Sometimes the client doesn’t have the money
– Plus, you need to understand how to communicate with the expert, how to examine him, and how to cross-examine him.
© Steven J. Willis 2006 95
Why Lawyers Need to Understand Finance
To summarize:
• Like it or not, lawyers need to understand financial calculations . . . in their personal lives and in their professional lives.
• It is not sufficient to rely on experts:
– Sometimes the client doesn’t have the money
– Plus, you need to understand how to communicate with the expert, how to examine him, and how to cross-examine him.
© Steven J. Willis 2006 96
Why Lawyers Need to Understand Finance
To summarize:
• Like it or not, lawyers need to understand financial calculations . . . in their personal lives and in their professional lives.
• It is not sufficient to rely on experts:
– Sometimes the client doesn’t have the money
– Plus, you need to understand how to communicate with the expert, how to examine him, and how to cross-examine him.
© Steven J. Willis 2006 97
Why Lawyers Need to Understand Finance
To summarize:
• Like it or not, lawyers need to understand financial calculations . . . in their personal lives and in their professional lives.
• It is not sufficient to rely on experts:
– Sometimes the client doesn’t have the money
– Plus, you need to understand how to communicate with the expert, how to examine him, and how to cross-examine him.
© Steven J. Willis 2006 98
Why Lawyers Need to Understand Finance
To summarize:
• Like it or not, lawyers need to understand financial calculations . . . in their personal lives and in their professional lives.
• It is not sufficient to rely on experts:
– Sometimes the client doesn’t have the money.
– Plus, you need to understand how to communicate with the expert, how to examine him, and how to cross-examine him.
© Steven J. Willis 2006 99
Why Lawyers Need to Understand Finance
To summarize:
• Like it or not, lawyers need to understand financial calculations . . . in their personal lives and in their professional lives.
• It is not sufficient to rely on experts:
– Sometimes the client doesn’t have the money.
– Plus, you need to understand how to communicate with the expert, how to examine him, and how to cross-examine him.
© Steven J. Willis 2006 100
Why Lawyers Need to Understand Finance
To summarize:
• Like it or not, lawyers need to understand financial calculations . . . in their personal lives and in their professional lives.
• It is not sufficient to rely on experts:
– Sometimes the client doesn’t have the money.
– Plus, you need to understand how to communicate with the expert, how to examine him, and how to cross-examine him.
© Steven J. Willis 2006 101
Why Lawyers Need to Understand Finance
To summarize:
• Like it or not, lawyers need to understand financial calculations . . . in their personal lives and in their professional lives.
• It is not sufficient to rely on experts:
– Sometimes the client doesn’t have the money.
– Plus, you need to understand how to communicate with the expert, how to examine him, and how to cross-examine him.
© Steven J. Willis 2006 102
The good news is:
It is far easier than you might think!!!
Why Lawyers Need to Understand Finance
© Steven J. Willis 2006 103
The good news is:
It is far easier than you might think!!!
Why Lawyers Need to Understand Finance