North Faith Church has approximately 7,000 accounted members. Monthly donations are approximately $192,000. Total expenses for the Church, excluding Pastor McAlisters annual salary of $80,000 is approximately $22,000. This includes Church maintenance, staff salary, building maintenance, inventory, etc.

On May 7^th 2015, Pastor McAlister was returning from War Memorial Hospital where he spent over 12 hours of conducting special services and prayer sessions for church patrons and community patients. As he approached and attempted to merge on Interstate 65, he failed to see the stopped traffic in front of him and collided with the vehicle in front of him. The drive of the vehicle was 28-year-old Joshua Boone, a young lawyer and father of 3.

After further investigation, it was revealed that Pastor McAlister was texting while driving and was found negligent by the courts. The family of Joshua Boone presented 3 proposals for Pastor McAlister. Because Pastor McAlister was on work time during the accident, the church and Pastor McAlister have privately decided to split all costs.

The following are the proposals:

Proposal 1	Pay the family of Joshua 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 Joshua 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 present value of these three proposals, attorney Knox Hollister called on a financial expert to do the analysis. You will aid in the process.

1. Assume a discount rate of 6 percent is used, which of the three projects has the highest present value? In analyzing the first proposal, take the present value of the 20-year $300,000 annuity. Then take the present value of the deferred annuity of $500,000 that will run from the 21st through the 40th year. The answer you get for the second annuity will represent the value at the beginning of the 21st year (the same as the end of the 20th year). You will need to discount this lump sum value back for 20 years as a single amount to get its present value. You then add together the present value of the first and second annuity. The second and third proposals are straightforward and require no further explanation. 2. Now assume that a discount rate of 11 percent is used instead of 6 percent. Which of the three alternatives provides the highest present value? 3. Explain why the change in outcome takes place between question 1 and question 2. 4. If Knox Hollister thinks additional punitive damages are likely to be $4 million in a jury trial, should he be more likely to settle out-of-court or go before the jury? 5. Should Pastor Michael McAlister be fired by North Faith Church? 6 Do you agree or disagree that the church should be using donations and insurance money to cover Paster McAlisters costs?