Amy Tovar

ACCT 2310-400
Case 6-4 ePortfolio

1. The settlement was determined by calculating the present value of lost future income, $200,000
per year, discounted at a rate that is expected to approximate the time value of money. In
Johns case, the discount rate (i) is 7%, as stated in the case description, and the number of
periods (n) is 25, the number of years John expected to work until retirement. The settlement
was calculated as follows:
Annuity
Amount
PVA
i=7%, n=25
Settlement

$200,000 X 11.65358 = $2,330,716

2. From a financial standpoint, I feel like this settlement was not fair. If john was to continue
working for the next 25 years making approximately $200,000 a year he would made much
more than the $2,330,716 he was awarded in the settlement. There is also salary increases and
inflation that could potentially make his earnings much higher. So I do not think it was fair.
3. This assignment definitely fits into my accounting program because it is a simple yet common
problem we see every day not in just court room settlements but also mortgages, credit cards,
and student loans. When I purchased my car I got a loan and a similar formula was used in my
paperwork to show me what I would end up paying throughout the life of my loan and until I
pay it off. This prepares me for the accounting field because like I said before, it is a common
situation used every day in the financing world. I have already learned the basics of interest in
previous classes but not as in depth as this class has taken it and its been a great and very
informative learning experience so far.