Calculating the present value of a single amount

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Reference no: EM131842003

Lost Wages and Employment Litigation Homework

Present value analysis

Assumptions

Discount rate, 2.9%
General Inflation rate, 2.0%
Compensation inflation, 2.5%
Medical inflation, 2.6%
Date of loss calculation date - 4/1/2018

Questions

1. What is the mathematical formula for calculating the future value of a single amount?

2. What is the mathematical formula for calculating the present value of a single amount?

3. What is the present value of an annual loss of $100,000 per year starting 1/1/2018 and ending 12/31/2030?

4. What is the present value of the following:

a. Loss of $45,000 a year starting 4/1/2018 and ending 12/31/2025.

b. Replacement earnings starting 7/1/2018 at $20,000 for the first and second year and then increasing to $30,000 in year 3 through 12/31/2025.

c. Future medical expenses:

i. Physical therapy - 12 sessions a year at a cost of $100 per session starting 4/1/2018 and continuing through life expectancy (5/31/2045)

ii. Never block injections every other year at a cost of $2,500 per treatment starting 4/1/2018 through life expectancy (5/31/2045)

5. Why are U.S. Treasuries used when discounting present value for damages related to individuals?

6. As a prospective trier-of-fact (judge, jury, arbitrator), what method of discounting to present value do you find easier to present and explain present value by explaining a growth rate and a discount rate, or just a net discount rate? Why?

7. When would you be required to show an inflation rate and a discount rate (instead of just a net discount rate)?

8. Review Consumer Price Index (Answer in your own words as you were explaining it to someone...DO NOT JUST CUT AND PASTE)

a. What does CPI measure?

b. How does BLS collect medical cost information?

c. What are the two broad categories under Medical Care?

For questions 3- 4 please use excel.

Attachment:- Assignment Files.rar

Reference no: EM131842003

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Reviews

len1842003

1/31/2018 11:41:29 PM

Comment: Note - Please calculate the present value as follows: For #3 you will have three calculations: PV assuming a 2.0% inflation rate (general inflation), PV assuming a 2.5% inflation rate (compensation), PV assuming a 2.6% inflation rate (medical), Once you set-up the excel model I provided with $100,000 per year – you simply need to change the cell with the inflation assumption. Please copy the the Excel tab for each homework problem (keep as one file) and submit the Excel file with your homework. It is key you can use Excel and perform these basic calculations.

len1842003

1/31/2018 11:41:22 PM

For 4 use the appropriate inflation rate based on the questions – 4a and 4b you would use compensation inflation. For questions 3– 4 please use excel (one file) and use different tabs for each question – it is important to use Excel because you will need to use it for the case study and final. Please submit your homework to the online drop box.

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