Question

Problem 11-3 Effect of discount rate (LO11-3) A brilliant young scientist is killed in a plane crash. It is anticipated that he could have earned $280,000 a year for the next 40 years. The attorney for the plaintiff's estate argues that the lost income should be discounted back to the present at 7 percent. The lawyer for the defendant's insurance company argues for a discount rate of 14 percent. What is the difference between the present value of the settlement at 7 percent and 14 percent? Compute each one separately. Use Appendix D for an approximate answer but calculate your final answer using the formula and financial calculator methods. (Do not round intermediate calculations. Round your answers to 2 decimal places.) Present Value PV atrale PV at 10 rate Derence

Answer 1

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PV, FV, ANNUITY (Autosaved) Microsoft Excel (Product Activation Failed) File Home Insert Page Layout Formulas Data Review View Add-Ins E AutoSum - Cut AS Wrap Text Calibri 11 General E Copy Fill Merge & Center Insert Delete Format Paste +.0 .00 .00 0 Conditional Format Cell Sort & Find & BIU % Format Painter Clear Filter Select Formatting as Table Styles Clipboard Font Alignment Number Styles Cells Editing CI225 CF CL CD CE CG CH CI CJ CK CM CN 225 РMT 280000 226 YEARS 40 227 PV AT 7% RATE 228 1 7.00% 229 RATE 230 231 PRESENT VALUE OF ANNUITY PMT*(1/r)* (1-(1/(1+r)^n)) 280000* (1/0.07)*(1-(1/(1+0.07)^40)) PV = 232 233 PV = 280000*13.33170884 234 PV 235 PV = 3732878.48 236 PV AT 14% RATE 237 2 14.00% 238 RATE 239 PRESENT VALUE OF ANNUITY PV = PMT*(1/r)*(1-(1/(1+r)^n)) 280000* (1/0.14)*(1-(1/(1+0.14)^40)) 280000 7.105040941 240 241 PV 242 PV = PV = 243 1989411.46 244 DIFFERENCE = 245 ANSWER 1743467.01 CAP STRU VALUE loan with points pv, fv, annuity profit margin LOCK BOXDILUTION ear FVA pva EXPO s3 LOAN OPTIONS DOLLAR COST AVG NPER APR CPI s2 Rea erences 120% WA 07:20 1ENG 08-11-2019