rate of interest and discount rate, Financial Accounting

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This is partly taken from a court case where one of my colleagues was a witness. Suppose that an employee is terminated without cause and that she sues the company for compensation.

-   Her wage used to be 20 000$ a year at the time of termination, and was set to grow at 5% a year.

-   Suppose we use the rate of interest as the discount rate, at 3%.

-   She still had 8 years to work there, before retirement.

-   They gave her severance pay of 5000$

-   At retirement, she would have been owed a pension equal to the best year in terms of pay (here, the last year, since the salary grows every year - so, for this one, use the wage rate you calculate at the end of the 8 year period). Let's assume she would have been projected to receive the pension for 10 years (note that the pension level does not increase at all any of these years)

How much should the company compensate her, assuming that they are found to be at fault?

Here again, outline all the steps of your reasoning. Grades will be awarded for the method as well as the answer.

Grading: This assignment is worth 10% of the grade. You will get 6 assignments throughout the semester, worth collectively 50% of the grade. You may submit all 6 and I will take the best five grade.


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