Calculating loss for future money flows

Question

I signed a contract w/ a company that would pay me various amounts of various dates (example: $200 on 5 Dec 2010, $150 on 12 Dec 2010, $750 on 23 Dec 2010, etc).

They breached this contract, but I was able to mitigate some of the loss by finding another company that would pay me various different amounts on different days (example: $110 on 7 Dec 2010, $417 on 14 Dec 2010, etc).

I must determine my loss for civil suit purposes.

How do you determine the loss/difference between two different sets of future flows?

Answer 1

Basically you need to use a time-value-of-money equation to discount the cashflows back to today.

The Wikipedia formula will likely work fine for you, then you just need to pick an effective interest rate to use in the calculation.

Run each of your amounts and dates though the formula (there are various on-line calculators to pick from, and sum up the values.

You did not mention your location or jurisdiction, but a useful proxy for the interest rate would be the average between the same duration mortgage rate and fixed-deposit rate at your bank; it should be close enough for your purposes - although if an actual lawsuit is involved and the sums high enough to have lawyers, it might be worth engaging an accountant as well to defend the veracity of both the calculation and the interest rates chosen.