Barbara was injured in an automobile accident. She has threatened to file a suit against the other party involved in the accident and has proposed the following settlement:
$\begin{array}{lr}
\text { Damages for } 25 \% \text { loss of the use of her right arm } & \$ 200,000 \
\text { Medical expenses } & 30,000 \
\text { Loss of wages } & 10,000 \
\text { Punitive damages } & 100,000 \
&\$340,000
\end{array}$
The defendant's insurance company is reluctant to pay punitive damages. Also, the company disputes the amount of her loss of wages amount. Instead, the company offers to pay her $300,000 for damages to her arm and $30,000 medical expenses. Assuming Barbara is in the 35% marginal tax bracket, will her after-tax proceeds from accepting the offer be equal to what she considers to be her actual damages (listed above)?

Question

Barbara was injured in an automobile accident. She has threatened to file a suit against the other party involved in the accident and has proposed the following settlement:
 $\begin{array}{lr}
\text { Damages for } 25 \% \text { loss of the use of her right arm } & \$ 200,000 \
\text { Medical expenses } & 30,000 \
\text { Loss of wages } & 10,000 \
\text { Punitive damages } & 100,000 \
&\$340,000
\end{array}$ 
The defendant's insurance company is reluctant to pay punitive damages. Also, the company disputes the amount of her loss of wages amount. Instead, the company offers to pay her $300,000 for damages to her arm and $30,000 medical expenses. Assuming Barbara is in the 35% marginal tax bracket, will her after-tax proceeds from accepting the offer be equal to what she considers to be her actual damages (listed above)?

Quizplus · Accepted Answer

The Answer of Barbara was injured in an automobile accident. She has threatened to file a suit against the other party involved in the accident and has proposed the following settlement:
 $\begin{array}{lr}
\text { Damages for } 25 \% \text { loss of the use of her right arm } & \$ 200,000 \
\text { Medical expenses } & 30,000 \
\text { Loss of wages } & 10,000 \
\text { Punitive damages } & 100,000 \
&\$340,000
\end{array}$ 
The defendant's insurance company is reluctant to pay punitive damages. Also, the company disputes the amount of her loss of wages amount. Instead, the company offers to pay her $300,000 for damages to her arm and $30,000 medical expenses. Assuming Barbara is in the 35% marginal tax bracket, will her after-tax proceeds from accepting the offer be equal to what she considers to be her actual damages (listed above)?

Barbara Was Injured in an Automobile Accident The Defendant's Insurance Company Is Reluctant to Pay Punitive Damages