Reference no: EM133074615

Case Study: A Lawsuit between Sara White's family and Wayward Frozen Foods, Inc.

Sara White had been practicing medicine for seven years. Her specialty was neurology. She had received her bachelor's degree in chemistry from Pennsylvania State University and her M.D. from Brown University. She did her residency at John Hopkins Hospital in Maryland. Sara practiced neurology in a clinic with two other doctors in Hurst, Texas.

Her husband, David White is managing his own business in pharmaceutical supplies industry. Sara and David had been married for seven years and were parents of young twin girls, Mary and Marla. They lived in a beautiful four-room house overlooking Lake Arlington. 

Sara normally left for work at 7:30 a.m. and closed her clinic at 5:30 p.m. to return home. On Sunday, January 3 rd, 2021 at 5:00 p.m., while celebrating the New Year weekends off with her family, she received an emergency call from Arlington General Hospital and immediately went to the hospital to help a patient who had suffered serious brain damage. By the time she had administered aid and helped prepare the patient for surgery it was already close to midnight.

On her way home as she passed the Ballpark in Arlington, she was confronted head on by a drunken driver going over 85 miles an hour. A crash was inevitable and Sara was killed instantly, while the truck driver only suffered minor injuries and were expected to make full recovery soon. The drunken driver was making a late delivery for Wayward Frozen Foods, Inc.

Legal Considerations

Sara's family was devastated by the news of the accident. After the funeral and explaining the situation to the children, David White knew he must seek legal redress for his family's enormous loss. Following interviews with a number of lawyers, he decided to hire Anna Friedman

Anna was with a Dallas law firm (Hanson, Friedman, and Thomason) that specialized in plaintiff's lawsuits. He had been in practice for over 20 years since graduating from Yale University law school in 1995. 

When Friedman began his investigation on behalf of David White and his family, she was surprised to find out the driver of the delivery vehicle had a prior record of alcohol abuse and that Wayward Frozen Foods, Inc. had knowledge of the problem when they hired him. It appears the driver was a relative of the owner and at the time of employment he revealed what he termed "a past alcoholic problem that was now under control." In any event, he was acting as an employee for Wayward Frozen Foods in using their truck to make a businessrelated delivery at the time of the accident. The fact that he was speeding and intoxicated at the time of the impact only increased the legal exposure for Wayward Frozen Foods.

After much negotiation with the law firm that represented Wayward Frozen Foods (and its insurance company), Anna Friedman received five proposals for an out-of-court settlement to be paid to Sara White's family. The intent of the proposals was to replace the future earning's power of Sara White, less any of the earnings she would have personally needed for her normal living requirements. Also, the value that she provided for her family as a wife and mother, quite aside from her earning power, had to be considered. Finally, there was the issue of punitive damages that Wayward Frozen Foods was exposed to as a result of letting an unqualified driver operate its truck. If the case went to court, there was no telling how much a jury might assign to this last factor

The five proposals are listed below. An actuarial table indicated that Sara, age 30 at the time of the accident, had an anticipated life expectancy of 50 more years. 

Proposal 1 

• $1,000,000 immediate payment
• $300,500 at the end of each year for the next ten years
• $800,000 a year at the end of years 11 through 40
• $1,000,000 a year at the end of years 41 through year 50

Proposal 2 

• $1,100,000 immediate payment
• $500,000 at the end of each year for the next fifty years

Proposal 3 

• $1,100,000 immediate payment
• $200,000 at the end of year 1
• $400,000 at the end of year 2
• $600,000 at the end of year 3
• $800,000 at the end of year 4
• $900,000 at the end of year 5
• $500,000 at the end of year 6 through year 50

Proposal 4 

• $1,000,000 immediate payment
• $500,000 at the beginning of each year for the next fifty years.

Proposal 5 

Received $6,000,000 now

In order to analyze the five proposals from financial stand point, attorney Anna Friedman called on a financial expert to do the analysis. You will aid in the process.

Required to: 

1. Rank the five options in order of preference for Sara White's family, ranging from the best to the worst option, assuming a discount rate of 9.5 percent. You are required to show all workings in the report and the use of excel is not allowed. Quote your answer in 2 decimal points.

2. Explain how the concept of "time value of money" helps you in determining the best option for the family.

3. Besides financial factors, discuss other factors that the family should consider before finalizing their option in choosing the best offer for the family.

4. Report presentation: Prepare the report with acceptable usage of grammar, language and style, and include all workings and formula.