Because CPM's insurance company will not help pay for punitive damage awards, the directors are concerned whether an award of $19,600,000 would be compensatory, punitive, or some of each. As part of your analysis, you will need to consider the time value of money and use an interest rate for discounting. You remember reading that "corporate bond rates" are appropriate for discounting workers' earnings to present value. Suppose the current rate is 5%. However, you also remember that since the losses are in terms of "real dollars", you will need to adjust the interest rate to an approximately "real rate" by subtracting the inflation rate. As an estimate of the inflation rate, use the median inflation rate implied by the real and nominal prices in Table 1 of the case.

CoursHeroTranscribedText: LOCAL CUSHION PRODUCTION Local Cushion Production (LCP) was a small business that manufactured bleacher seat pads that sports fans or picnickers could use to make wooden outdoor seating (or even convenient rocks) a bit warmer and more comfortable. The primary markets for LCP's product were college bookstores (to be sold to students and alumni) and specialty advertising rms (for use as corporate give-a-ways). The firm was organized in the second half of 2016 and began selling products in 2017. LCP had a policy of providing an annual "cost of living" increase for its assembly workers to maintain a constant annual cost of $24,500 per worker (1984 dollars). The production process requires one worker for every sixteen tons manufactured. As of January 2020, up to ten of the assembly workers were provided by a local Sheltered Workshop facility (a facility that provided and supervised disabled workers for product assembly and piecework). This facility also rented the necessary manufacturing space to LCP. Coast-toCoast Prime Manufacturing (CPM), a local manufacturing conglomerate with some excess capacity, provided the remaining workers and production space when more than ten disabled workers were required. Coast-to-Coast Prime Manufacturing was also paid $24,500 (ination-adjusted) apiece for its workers plus an additional fee for the rental of equipment and space. In addition to manufacturing labor, LCP employed a clerical worker and a general manager but no sales staff. Through December 2020, sales were generated primarily by manufacturer's representatives who received a standard 5% of sales as their commission. In January 2020, Coast-to-Coast Prime Manufacturing purchased LCP. CPM's management team immediately began supplementing sales efforts by adding the LCP products to their own manufacturer's representatives lines. Otherwise, they operated LCP without signicant changes. The Coast-to-Coast Prime Manufacturing managers soon found that while sales were growing, profits were shrinking. The management responded for the second half of 2020 by increasing the commission to their manufacturer's representatives from 5% to 6%. The sales force responded quickly, and sales boomed. By July 2021, CPM's board of directors expressed some concern to management. Even though sales were up, the deal was not proving to be profitable. At the end of July 2021, the board of directors was informed that CPM's management team had decided to reduce LCP's production staff by letting go of those employees provided by the Sheltered Work Facility. It is now autumn 2022. CPM has been sued by a noted civil rights attorney claiming that closing down the Sheltered Work Facility manufacturing operation was a wrongful termination of the workers in the Sheltered Work Facility. Her court lings say that there was no valid business reason for selecting the disabled workers for layoff rather than the nondisabled workers; in part, the court lings claim that the layoff was wrongful because there was no economic justication for dismissing these workers who had been at least as productive, and protable, as their non-disabled counterparts for so many years. The attorney claimed that this was obvious discrimination against the disabled and because of the discrimination, her ten clients will be unemployed for an average of 20 years each. The attorney is asking the court for a verdict of $19,600,000 as an appropriate award to her ten clients if she prevails in her action. She estimated this gure by computing 20 years x 10 clients x $24,500 = $4,900,000, doubling it to account for her fees, then doubling that to account for future inflation. Required You have been hired by CPM's board of directors to help their attorney (and them) evaluate the claims in the lawsuit and determine whether the management team made the right decision. You have been asked to consider the following specic questions in preparing a report: (Use the guidelines for preparing a report on the course website.) You remember from your Business School days the following concepts that you think might be useful here: TABLE 1 adjusting data for inflation (macroeconomics LDC concept 1) marginal cost vs. average cost (microeconomics LDC concept 6) opportunity cost vs. accounting cost (microeconomics LDC concept 1) Average Real Nominal Mfg. Rep's Earnings present value (financial accounting LDC concept 9) Price/Ton Nominal Revenue Commission before Tax duty to mitigate damages (business law LDC concept 5) Sales (Tons ($000) Price ($000) ($000) Rate Total Cost ($000) ($000) compensatory and punitive damages (business law LDC concept 9) 2016 2h 0 0 0 194.760 5% (194.76) 2017 11 75 2.004 4.89 366.75 377.180 5% 10.43) 2017 2 100 1.99 4.92 492 463.760 5% 28.24 2018 1 150 2.004 5.01 751.5 638.230 5% 113.27 2018 2 175 2.004 5.05 883.75 738.600 5% 145.15 2019 1 185 2.004 5.1 943.5 812.800 5% 130.70 2019 21 200 2.006 5.15 1030 908.450 5% 121.55 2020 1h 225 2.001 5.15 1158.75 1090.950 5% 67.80 2020 21 275 2.002 5.21 1432.75 1483.460 6% (50.71) 2021 1h 285 2.003 5.28 1504.8 1563.200 5% (58.40)