Allison Boone had been practising medicine for seven years. Her speciality was neurology,

She had received her bachelor's degree in chemistry from the University of Toronto and

her M$.$D$.$ from McMnster University, She did her residency at Toronto Genernl Hospital.

Allison practised neurology in a clinic with three other doctors in Toronto.

Her husband, Samuel L$.$ Boone, held an administrative position at the Toronto Dominion

Bank. Allison and Samuel had beel married for five years and were the parents of young

twin sons. Tord and Trey. They lived in the Beaches area in a benutiful four$-$room house

overlooking Lake Ontario.

Allison normally left for work at $7$:$30$ a$.$m$.$ and closed her office at $5$:$30$ p$.$m$.$ to return

home. On Tuesclay, July $6,20$XX$.$ at $5$:$15$ p$.$m$..$ she received an emergency call from

Toronto General Hospital and immediately went to the hospital to help a patient who had

suffered serious brain dannge. By the time she had administered aid and helped prepare

the patient for surgery it was $11$:$00$ p$.$m$.$

On ther way home along Lakeshore Boulevard, she was confronted head$-$on by a drunken

driver going oweir $110$ kilometres an hour. A crash was inevitable, and Allison and the other

driver were killed instantly. The drunken driver was making a late delivery for Wayland

Frozen Frods Inc.

Legal Conslderations

The families of both drivers were devastated by the news of the accident. After the funeraland explaining the situation to the children, Samuel Boone knew be must seek legal redress for his family's

decided to hire Slown Whitaker.

Whituker was with a Toronto law firm $($Hanson$,$ Whitaker, and Thomason$)$ that

specialized in plaintiff's lawsuits. He had been in practice for over $20$ years since

graduating from Osgoode Law School.

When Whitaker began his investigation on behalf of Samuel Boone and his family, he was

surprised to find out the driver of the delivery vehicle thad a prior record of alcohol abuse

and that Waytand Frozen Foods loc. had knowledge of the problem when it hired him. It

appears the driver was a relative of the owner, and at the time of employment he revealed

what he termed $"-$ past alcoholic problem that was now under control"$\text{'}$ In any event, he

was acting as an employes for Wastand Frozen Foods in using its truck to make a

busineas$-$related delivery at the time of the accident. The fact that he was speeding and

intoxicated at the time of the impact only increased the legal exposure for Wayland Frozen

Foods.

After much negotiating with the law arm that represented Wasland Frozess Foods $($and its

insurance compary$),$ Whitaker received three proposals for an out$-$of$-$court settlement to

be paid to Allison Boone's family: The intent of the proposals was to replace the future

earnings of Allison Boone less any of the earnings she would have personally needed for

her normal living requirements. Also, the value that the provided for her family as a wife

and mother, quite aside from her earning power, had to be considered. Finailly, there was

the issue of punitive damages that Waptand Frozen Foods was exposed to as a result of

letting an unqualified driver operate its truck if the case went to court, there was no

telling how much a jury might assign to this last factor.

The three proposals are listed below. An actuarial table indicated that Allison, age $37$ at

the time of the accident, had an anticipated lifie expectancy of $40$ more years.

Proposal $1.$ Pay the familly of Allison Boome $$300,000$ a year for the next $20$ years, and

$$500,000$a year for the remaining $20$ years.

Proposal $2.$ Pay the family a lump$-$sum payment of $$5$ million today:

Proposal $3.$ Pay the family of Allison Boone a relatively small amount of $$50,000$ a

year for the next $40$ years, but also guarantee them a final payment of $$75$

million at the end of $40$ years.

In order to analyze the presens value of these three proposals, Whitaker called

on a financial expert to do the analysis. You will aid in the process.

a$.$ Using a current long$-$term interest rate, recommend a proposal to the Boone family:

Justify your choice of discount rate.

b$.$ Now assume that a discount rate of $11$ percent is used. Which of the three alternatives

provides the highest present value?

c$.$ Explain why the change in outcome takes place between part a and part $b.$

d$.$ If Whitaker thinks punitive damages are likely to be $$4$ million in a jury trial, should he

be more likely so settle out of court or go before a Jury?