In 2012, Khalid Was in an Automobile Accident and Suffered

In 2012, Khalid was in an automobile accident and suffered physical injuries.The accident was caused by Rashad's negligence.Khalid threatened to file a lawsuit against Amber Trucking Company, Rashad's employer, claiming $50,000 for pain and suffering, $25,000 for loss of income, and $100,000 in punitive damages.Amber's insurance company will not pay punitive damages; therefore, Amber has offered to settle the case for $120,000 for pain and suffering, $25,000 for loss of income, and nothing for punitive damages. Khalid is in the 35% marginal tax bracket.What is the after-tax difference to Khalid between Khalid's original claim and Amber's offer?

A) Amber's offer is $30,000 less.(- $100,000 punitive damages + $70,000 increased pain and suffering.)
B) Amber's offer is $10,500 less.[($30,000 ´ .35) = $10,500].
C) Amber's offer is $19,500 less. [$30,000(1 - .35) = $19,500].
D) Amber's offer is $5,000 more.[$70,000 - (1 - .35) ($100,000) = $65,000].
E) None of the above.

Correct Answer:

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