Balance Sheet- Richard said his assets included a home worth $300,000, approximately $350,000 in securities, two cars worth $40,000 with loans of $15,000 against them, and other assets including jewelry (worth $5,000), art ($5,000), and furniture ($7,000). Richard and his wife had money market funds of $2,000, a bonus due of $5,000 net of taxes, and credit card payments due of $12,000. Their house had a $130,000 mortgage.He said to assume that his salary will rise 6 percent a year, and his investment income is 11 percent a year (the investment loss came a year ago). His expenses should rise 3 percent a year except for medical, which will grow at a rate of 6 percent yearly, and taxes, which will grow at about 7 percent a year.

Cash Flow- Richard said he was not worried about the losses taken, but Monica insisted that they save additional monies. Richard came in with his cash flow statistics below.

Inflows ($)

Outflows ($)

Salary

100,000

Mortgage & Home Maintenance

20,000

Investment Income

8,000

Food

5,000

Clothing

8,000

Health Care

6,000

Transportation

2,000

Personal

3,000

Recreation

4,000

Cars, Entertainment

9,000

Hobby

1,000

Gifts & Charity

2,000

Insurance

6,000

Taxes

26,000

Debt- Richard has asked you whether he should remortgage his house and place the proceeds in the stock market. He says the present time may be appropriate to refinance because market rates for mortgage loans of 6.5 percent are well below his mortgage rate of 8 percent. He wants to use an adjustable rate that provides an even lower 4 percent rate for the first year with rates thereafter 2 percent above the five-year Treasury rate.

Richard wants a 30-year mortgage because he said he doesn't expect "to go anywhere" and the annual repayments would be low. He said he was thinking about buying a new car. Monica is afraid of taking on more debt and wants a budget to limit spending of all types.

Case Application Questions:

1.Construct the balance sheet.

2.Would you tell Richard and Monica that it was strong? Why?

3.Complete the balance sheet section of the plan.

4.What recommendations would you have to help them save more?

5.Construct their cash flow statement for this year and the next two years.

6.What do the future cash flow figures indicate?