10.00 points A brilliant young scientist is killed in a plane crash. It is antic

Question

10.00 points A brilliant young scientist is killed in a plane crash. It is anticipated that he could have earned $390,000 a year for the next 20 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 13 percent. What is the difference between the present value of the settlement at 7 percent and 13 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 at 7% rate PV at 13% rate Difference Hints References eBook&Resources; Hint#1 Check my.work

Explanation / Answer

Using the given table:

PV at 7% = 10.594 * 390000 (as per table at 7% during period 20 is 10.594)

= $4131660

PV at 13% = 7.025 * 390000

= $2739750

Difference = $1391910

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