A brilliant young scientist is killed in a plane crash. It is anticipated that he could have earned $400,000 a year for the next 25 years. The attorney for the plaintiff’s estate argues that the lost income should be discounted back to the present at 8 percent. The lawyer for the defendant’s insurance company argues for a discount rate of 12 percent.
What is the difference between the present value of the settlement at 8 percent and 12 percent? Compute each one separately. Use Appendix D for an approximate answer but calculate your final answer using the formula and financial calculator methods. (Do not round intermediate calculations. Round your answers to 2 decimal places.)
(A) PV at 8% rate
(b) PV at 12% rate