Question

TVM & Capital Budgeting 6 You are serving on a jury. A plaintiff is suing the city for injuries sustained after a freak street sweeper accident. In the trial, doctors testified that it will be five years before the plaintiff is able to return to work. The jury has already decided in favor of the plaintiff. You are the foreperson of the jury and propose that the jury give the plaintiff an award to cover the following: (a) The present value of two years' back pay. The plaintiff's annual salary for the last two years would have been $46,000 and $49,000, respectively. (b) The present value of five years' future salary. You assume the salary will be $53,000 per year (C) $100,000 for pain and suffering. (d) $25,000 for court costs. points eBook Assume that the salary payments are equal amounts paid at the end of each month. If the interest rate you choose is an EAR of 7 percent, what is the size of the settlement? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Print Size of the settlement References If you were the plaintiff, would you like to see a higher or lower interest rate? Higher interest rate • Lower interest rate

Answer 1

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PE EPS, STOCK DIVIDEND - Microsoft Excel (Product Activation Failed) View Add-Ins File Home Insert Page Layout Formulas Data Review - 2x % Cut Σ AutoSum : A General Wrap Text Merge & Center - $ % , :.: Fill 2 Clear Formatting as Table Styles Styles Sort & Filter Editing Find & Select Number Cells Calibri 11 A A = = = V E Copy Paste Format Painter BI U D- DA Clipboard Font Alignment AN288 foc AF AG AH AI AJ 273 274 STEP 1 EAR 7% 275 APR 12((1+0.07)^(1/12) - 1) = AK AL AM AN AO AP AQ AR AS 6.7850% 276 STEP 2 277 278 50779.85 279 WE HAVE TO CALCULATE FV OF 2 YEARS SALARY FV OF 46000 = 47457.81 X 1.07 = (SEE EXCEL NOTE) --->>>> FV OF 49000 = 50552.88 (SEE EXCEL NOTE) --->>>> EXCEL =FV(6.7850%/12,12,-46000/12) 50552.88 EXCEL =FV(6.7850%/12,12,-49000/12) 280 281 282 283 284 STEP 3 WE HAVE TO CALCULATE PV OF 5 YEARS SALARY PV OF 53000 FOR 5 YEARS 224197.34 (SEE EXCEL NOTE) --->>>> 224197.34 285 EXCEL =PV(6.7850%/12,12*5,-53000/12) STEP 4 CASH PAYMENT TODAY 100000 + 25000 = 125000.00 ans 450530.08 286 287 288 289 290 291 292 Q.2 293 ANSWER: AMOUNT OF AWARD = SIZE OF SETTLEMENT (STEP : 2+3+4) AS A PLAINTIFF, WE WILL ALWAYS PREFER LOWER INTEREST RATE N d marginal tax PB ROPI APV ROSS price quote EVA MVA LEVERAGED BUY SWAP distress BRIGHAN CAP GAIN Sheet1 eberk MARGIN MONEY ferences: AL125 Rea call put bilbo_NI B0 120% 0 + * DENG 02-11-2019 C E O