2. Buying a Vacation Home. Carmen and Juan Montoya have just fi nished putting their three daughters through college. As empty-nesters they are considering purchasing a vacation home on a nearby lake because prices have dropped in recent years. The house might also serve as a retirement home once they retire in 12 years. The Montoya’s net worth is $283,000 including their home worth about $265,000 on which they currently owe $143,000 for their fi rst mortgage. Their outstanding debts in addition to their mortgage include $12,500 on one car loan, $13,700 on a second car loan, and a $25,500 second mortgage on their home taken out to help pay for college expenses.

(a) Calculate the Montoya’s debt-to-equity ratio.

(b) Advise them as to the wisdom of borrowing for a vacation home at this time.