None A brilliant young scientist is killed in a plane crash. It is anticipated that he could have earned $240,000 a year for the next 50 years.The attorney for the plaintiff's estate argues that the lost income should be discounted back to the present at 4 percent. The lawyer forthe defendant's insurance company argues for a discount rate of 8 percent.What is the difference between the present value of the settlement at 4 percent and 8 percent? Compute each one separately. UseAppendix D for an approximate answer but calculate your final answer using the formula and financial calculator methods.Note: Do not round intermediate calculations. Round your answers to 2 decimal places.PV at 4% ratePV at 8% rateDifferencePresent Value

Step 1: Given Value for Calculation Payment = p = $240,000Time = t = 50 Years Step 2: Calculation of…

Answered: A brilliant young scientist is killed…

Individual Income Taxes

43rd Edition

ISBN:9780357109731

Author:Hoffman

Publisher:Hoffman

Chapter4: Gross Income: Concepts And Inclusions

Section: Chapter Questions

Problem 3RP

See similar textbooks

Similar questions

Marty has been offered an injury settlement of $10,000 payable in 3 years. If Marty's opportunity cost is 5%, what is the present value of the injury settlement? If Marty's opportunity cost is 8%, what is the present value of the injury settlement? If Marty's opportunity cost is 12%, what is the present value of the injury settlement?
Imagine you are working for an insurance companies. An individual is calming 10,000$ worth of stolen objects on an insurance claim, but you suspect he may only as suffer a loss of 6,000$. You have the ability to offer a settlement. If accepted, the claim is close and the individual receives such payment. If rejected, a court will decide the payment is 6,000$ or 10,000$. If the individual really lost 10,000$, there is 60% chance the court will decide in his favor. If the individual only lost 6,000$, there is 60% chance the court will only grant him that amount. Propose a settlement amount that will allow you to figure out if the individual is lying or not. Between 7600 and 8400
Matthew is considering several possible compensation alternatives for services he has provided as a consultant: Option A: Matthew could receive $8,000 today. Option B: Matthew could receive $2,500 at the end of each of the next four years. Option C: Matthew could receive $12,000 five years from now. Required: Calculate the present value for each option assuming that Matthew can earn 7 percent on any investment funds. Which option results in the greatest financial benefit to Matthew? If Matthew earns 10 percent, will that change your answer to # 2 above? Please explain.
Eva Stone's home in Chicago was recently gutted in a fire. Her living and dining rooms were destroyed completely, and the damaged personal property had a replacement price of $19,000. The average age of the damaged personal property was 8 years, and its useful life was estimated to be 18 years. What is the maximum amount the insurance company would pay Eva, assuming that it reimburses losses on an actual cash-value basis? Round the answer to the nearest cent.
Barb Muller wins the lottery. She wins $20,000 per year to be paid for 10 years. The state offers her the choice of a cash settlement now instead of the annual payments for 10 years. If the interest rate is 6%, what is the amount the state will offer for a settlement today?
The Petersik family is considering purchasing a second home to use for short term rentals near the beach. If it purchases the house, they will place a down payment of $64,000 on the house. They estimate they will get an annual net rental profit of $8,500 after their mortgage and expenses are paid. After 18 years, they plan to pass the rental home along to their children, so assume the home has negligible salvage value. What would be the ERŘ if the Petersik family decides to invest in a rental home, assuming they keep the home for 18 years? Assume their MARR is 13%. Should the Petersik family invest in the rental home?
A home owner defaults and he has three mortgages on the house. At the time of the default, the first lien has a balance of $100,000, the second lien has a balance of $200,000, the third lien has a balance of $350,000, and he also owes $5000 in property taxes. The recovery rate for the third lien holder equals 50%. The house price is sold for $ in the foreclosure auction.
Rocky and Adrien are selling their house. Offer #1 puts $8000 down and pays the lump sum $145703 in 4 months. Offer #2 puts $8000 down and pays the lump sum $150513 in 12 months. At what rate of interest would Adrien and Rocky be indifferent to the two offers (use today as a focal date)?
Sam was injured in an accident, and the insurance company has offered him the choice of Php25,000 per year for 15 years, with the first payment being made today, or a lump sum. If a fair return is 7.5%, how large must the lump sum be to leave him as well off financially as with the annuity?
For purposes of compensation, an actuary working for a lawyer estimates the annual earnings of a September 11 victim that died at the Twin Towers at age 32. The victim was making $95,000 a year and a stream of payments for that amount would have likely accrued to her annually until retirement at age 65. The actuary knows that this is an ordinary annuity problem. He assumes, as is usual, that the victim's salary would grow in tandem with inflation, which for years has hovered at around 3% annually. What is the future value of this annuity, the minimum basis for a possible settlement with the relatives of the victim, if a fair settlement were indeed on the table?
5. Mr. Johnson wants to buy insurance against his house burning down. The insurance will pay Mr. Johnson $500,000 if his house burns down. The probability that Mr. Johnson's house will burn down in a given year is 0.005, so the probability that it will not burn down is 0.995. The insurance premium for the policy is $2,000 per year. (a) Determine the expected return for the insurance company. (b) Because the insurance company is losing money on house insurance, a company officer asks the premium manager to determine the annual premium required for the insurance company to make $1,000 on each $500,000 policy. Determine the annual premium.
Gail Trevino expects to receive a $500,000 cash benefit when she retires five years from today. Ms. Trevino’s employer has offered an early retirement incentive by agreeing to pay her $325,000 today if she agrees to retire immediately. Ms. Trevino desires to earn a rate of return of 8 percent. (PV of $1 and PVA of $1) (Use appropriate factor(s) from the tables provided.) Required Calculate the present value of the $500,000 future cash benefit. Assuming that the retirement benefit is the only consideration in making the retirement decision, should Ms. Trevino accept her employer’s offer? (Round your final answer to the nearest whole dollar value.)

SEE MORE QUESTIONS

Recommended textbooks for you

Individual Income Taxes

Accounting

ISBN:

9780357109731

Author:

Hoffman

Publisher:

CENGAGE LEARNING - CONSIGNMENT

Financial Accounting Intro Concepts Meth/Uses

Finance

ISBN:

9781285595047

Author:

Weil

Publisher:

Cengage

Individual Income Taxes

Accounting

ISBN:

9780357109731

Author:

Hoffman

Publisher:

CENGAGE LEARNING - CONSIGNMENT

Financial Accounting Intro Concepts Meth/Uses

Finance

ISBN:

9781285595047

Author:

Weil

Publisher:

Cengage

SEE MORE TEXTBOOKS