Question
It is now December 31, 2020 (t = 0), and a court just found in favor of a woman who sued the company for injuries
It is now December 31, 2020 (t = 0), and a court just found in favor of a woman who sued the company for injuries sustained in a January 2019 accident. She requested recovery of lost wages plus P100,000 for pain and suffering plus P20,000 for legal expenses. Her doctor testified that she has been unable to work since the accident and that she will not be able to work in the future. She is now 62, and the court decided that she would have worked for another 3 years. She was scheduled to have earned P34,000 in 2019. (To simplify this problem, assume that the entire annual salary amount would have been received on December 31, 2019.) Her employer testified that she probably would have received raises of 3% per year. The actual payment for the court award will be made on December 31, 2021. The court stipulated that all amounts are to be adjusted to a present value basis on December 31, 2021, using a 7% annual interest rate. Furthermore, he stipulated that the pain and suffering and legal expenses should be based on a December 31, 2020, date. How large a check must the company write on December 31, 2021?
Questions :
A) Draw a timeline for the relevant cash flows. B) How large a check must the company write on Dec 31, 2021.
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