Allison Boone, M.D. Allison Boone had been practising medicine for seven years. Her specialty was neurology. She had received her bachelor's degree in chemistry from the University of Toronto and her M.D. from McMaster University, She did her residency at Toronto General 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 been married for five years and were the parents of young twin sons, Todd and Trey. They lived in the Beaches area in a beautiful four-room house overlooking Lake Ontario Allison normally left for work at 7:30 am and closed her office at 5:30 pm. to return home. On Tuesday, July 6, 20XX, 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 damage. By the time she had administered aid and helped prepare the patient for surgery it was 11:00 p.m. On her way home along Lakeshore Boulevard, she was confronted head-on by a drunken driver going over 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 Foods Inc. Legal Considerations The families of both drivers were devastated by the news of the accident. After the funeral and explaining the situation to the children, Samuel Boone knew he must seek legal redress for his family's enormous loss. Following interviews with a number of factor. The three proposals are listed below. An actuarial table indicated that Allison, age 37 at the time of the accident, had an anticipated life expectancy of 40 more years. Proposal 1 Pay the family of Allison Boone $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. Instructions: a. Using a discount rate of 6%, determine the present value of each of the proposals AND recommend which offer is the best and why? Show ALL calculations. (19 marks) b. Now assume a discount rate of 11% is used. Which of the three alternatives provides the highest present value? Show ALL calculations. (19 marks) c. Explain why the change outcomes takes place between part a and part b. (2 marks)
