You have been hired by an attorney to perform economic analysis of lost wages in a...

Transcribed Image Text:

You have been hired by an attorney to perform economic analysis of lost wages in a wrongful death suit. The case involved Jane Doe, who was killed in an accident just after her 59th birthday. Ms. Doe could have expected to earn $75,000 this year. Data indicate that the income of like workers in her job has increased an average 6% over the past 20 years. Ms. Doe's expected retirement age was 65 (on her birthday). Available data provide the mortality rated given below for individuals of Ms. Doe's gender and occupation at various ages. Assume 10% is the appropriate discount rate. Mortality Future Age Rate (m+) Earnings 60 60 0.075 61 0.09 62 0.10 63 0.12 64 65 0.15 0.16 Probability of Discount Being Alive (1-m+) Factor (1+if PV of Expected Future Earnings a. Calculate the present discounted value of Ms. Doe's expected lost earnings (i.e., what she would have expected to earn each year from age 59 to 65.) To do so, you can use the table above to calculate the necessary numbers to find the expected earnings in each future work year. (For simplicity, assume she received all her earnings for the preceding year on her birthday. Note that earnings grow 6% each year). b. The attorney has asked your advice regarding a minimum figure that should be accepted as an out-of-court settlement. What guidance can you give the attorney? Would additional information allow you to give the attorney a more precise estimate of the figure that should be accepted? Give an example of how more information would help. c. You must be prepared for cross-examination by the defendant's attorney. Where would you expect the opposing attorney to attack your testimony? You have been hired by an attorney to perform economic analysis of lost wages in a wrongful death suit. The case involved Jane Doe, who was killed in an accident just after her 59th birthday. Ms. Doe could have expected to earn $75,000 this year. Data indicate that the income of like workers in her job has increased an average 6% over the past 20 years. Ms. Doe's expected retirement age was 65 (on her birthday). Available data provide the mortality rated given below for individuals of Ms. Doe's gender and occupation at various ages. Assume 10% is the appropriate discount rate. Mortality Future Age Rate (m+) Earnings 60 60 0.075 61 0.09 62 0.10 63 0.12 64 65 0.15 0.16 Probability of Discount Being Alive (1-m+) Factor (1+if PV of Expected Future Earnings a. Calculate the present discounted value of Ms. Doe's expected lost earnings (i.e., what she would have expected to earn each year from age 59 to 65.) To do so, you can use the table above to calculate the necessary numbers to find the expected earnings in each future work year. (For simplicity, assume she received all her earnings for the preceding year on her birthday. Note that earnings grow 6% each year). b. The attorney has asked your advice regarding a minimum figure that should be accepted as an out-of-court settlement. What guidance can you give the attorney? Would additional information allow you to give the attorney a more precise estimate of the figure that should be accepted? Give an example of how more information would help. c. You must be prepared for cross-examination by the defendant's attorney. Where would you expect the opposing attorney to attack your testimony?