Answered step by step
Verified Expert Solution
Question
...
1 Approved Answer
5. Barbara was injured in an automobile accident. She has threatened to file a suit against the other party involved in the accident and has
5. Barbara was injured in an automobile accident. She has threatened to file a suit against the other party involved in the accident and has proposed the following settlement Damages for 25% loss of the use of her right arm Medical expenses Loss of wages Punitive damages $200,000 30,000 10,000 100.000 $340,000 The defendant's insurance company is reluctant to pay punitive damages. Also, the company disputes the amount of her loss of wages amount. Instead, the company offers to pay her $300,000 for damages to her arm and $30,000 medical expenses. Assume Barbara is in the 35% marginal tax brncket. What will her after-tax proceeds from accepting the offer? The $300,000 for damages to her arm are excluded due to it being a physical Injury. She will also not be taxed on the $30,000 medical expenses Her tax burden from the proceeds is $0 I What would her after-tax proceeds be if she is granted her proposal? Only the punitive damages of $100,000 will be taxed at the 35% rate, Her tax burden from the proceeds is $35.000 (100,000 x .35) So which would be most advantageous to Barbara? Barbara would be advised to take the company's offer as opposed to her suggestion. Despite the company paying her $10,000 more in damages, the inclusion of punitive damages, which are taxed, results in her receiving only $315,000 for her offer to the company, whecas she receives the full $330,000 under the company's plan
Step by Step Solution
There are 3 Steps involved in it
Step: 1
![blur-text-image](https://dsd5zvtm8ll6.cloudfront.net/includes/images/document_product_info/blur-text-image.webp)
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
![blur-text-image](https://dsd5zvtm8ll6.cloudfront.net/includes/images/document_product_info/blur-subtext-image.webp)
Step: 3
![blur-text-image](https://dsd5zvtm8ll6.cloudfront.net/includes/images/document_product_info/blur-subtext-image.webp)
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started