Budgeting and Income Projections Leyla and Larry Hartley of Columbus, Ohio have decided to start a family next year, so they are looking over their budget (illustrated in Table 3-5 as the young married couple"). Leyla thinks that she can go on half-salary ($2,400 instead of $4,800 per month) in her job as a college textbook sales representative for about 18 months after the baby's birth, she will then return to full-time work. a. Looking at the Hartley's current monthly budget, identify categories and amounts in their budget where they realistically might cut back $2,400. (Hint: Federal and state taxes should drop about $600 a month ($7,200 annually) as their income drops.) The input in the box below will not be graded, but may be reviewed and considered by your instructor blank b. Assume that Leyla and Larry could be persuaded not to begin a family for another five years. What specific budgeting recommendations would you give them for handling (1) their foxed expenses and (t) their variable expenses to prepare financially for an anticipated $2,400 loss of income for 18 months as well as the expenses for the new baby? The input in the box below will not be graded, but may be reviewed and considered by your instructor blank c. If the Hartley's gross income of $8,830 rises 2 percent per year in the future, what will their income be after five years? Round Puture value of a Single Amount in intermediate calculations to four decimal places. (Hint Use Appendix A1 or the Garman/Forgue companion website. Round your answer to the nearest dollar Table 3-5 Sample Monthly Budgets for Various Family Units Single Working Person College Student Young Married Couple Married couple with Two College-Age Children Married Couple with Two Young Children $4,400 $1,000 0 $4,000 4,800 30 $4,000 4,400 30 $8,000 1,600 80 20 300 570 51,872 0 59.680 $4,420 $8,830 $8,430 5 250 $ 380 360 Classifications INCOME Salary 1 Salary 2 Interest and dividends Student loan withdrawals Savings withdrawals Total Income EXPENSES Fixed Expenses 4010) retirement savings IRA and Roth IRA contributions Savings automatically withheld Housing Health insurance State income taxes Life and disability insurance Homeowner/renter insurance Automobile insurance Vehicle loan payments Emergency Savings Student loan payments Loans Credit card payment Federal income taxes Social Security taxes 60 300 $ 500 200 400 900 280 80 200 200 120 200 0 1080 850 640 200 1,000 720 620 280 500 60 90 100 170 300 88 220 130 1080 670 300 135 $6.000 140 180 400 200 300 120 0 850 540 390 100 55,550 200 200 200 200 1,000 730 330 400 56.230 760 3,360 200 Health insurance State income tax Life and disability insurance Homeownerhenter insurance Automobile insurance Vehicle loan payments Emergency Savings Student loan payments Loans Credit card payment Federal income taxes Social Security taxes Real estate taxes Investments Total fixed expenses Variable expenses Other savings Food Utilities Automobile gas, oil, maintenance Medical expenses Child Care Clothing Gifts and charitable contributions Personal allowances Education expenses Furnishings and appliances Personal care Entertainment Vacations Miscellaneous Total variable expenses Total Expenses 130 500 20 600 580 240 300 110 600 70 120 500 300 250 150 200 $2.00 $8.830 60 50 52.880 $8.430 51,060 54.420 200 52.450 59.680 Appendix A-1 Future Value of a Single Amount (51 at the End of n Periods) (Used to compute the Compounded Future Value of a known Lump Sum) 12% 11% 11100 13% 14% 15% 16% 17% 11700 18% 19% 20% 1.1100 1100 1.1900 10% 11000 12100 13310 1.1934 1415 5609 1316 160 161 TS 14161 162 2.0053 14400 7780 2.0736 1515 10) n 1% 2% 3% 4% 5% 6% 7% 8% 9% 1 10100 1000 1000 1000 10500 10600 10700 100 100 2 10201 10404 1060 16116 11025 11236 11449 1181 31033 106121927 1129 1156 11910 2250 2 29 4 106 10624 11255 1699 12155 1262513103 105 14116 5 1050 11001 1190312167 2163 1302 160 161 1516 6 10615 1 140 145 150 1 16 7 6721 11 12 13 14 1 5 16 8 109 1717 1477 18 19 9 17 15 5513 15 2179 101 1046 2150 480 169 1708 672 213 2 11 1.1157 204 130 S 1.7103 21049 2016 0 12 1126 126 0 60 1959 01223522 25 1127 13 1.138112936 16 1665 196 213294098 21 00 14 1 13195 151X17117 11 22609575 291 MI 11610 350 100 2009 201 0 16 17 18 19 20 1) 110 00 000 154 2519 2 35 015 2017 2.8531 550 34523 37975 23179 2008 6. 7.1379 7 6.1521 7.0753 8.1371 9.35% TU 007 OM 110 11 111 112 15 10 175 TL 50 10.00 1 106 7 1666 166 000 0 a 1616 120202191126510 61025 21 204 5157 0 8 09 106 10 >> SO 162251 0S 0 S 6 0 21 572 5 6 6 05 10 105 4269 07 111 25 606 608 1037 26 16 225 555 50 112 13.1100 17000 3105651001 Financial planning case 3-2 Victor and Maria Hernandez Victor and Maria, both in their late 30s, have two children: John, age 13 and Joseph, age 15. Victor has had a long sales career with a retail appliance store. Maria works part-time as a medical records assistant. The Hernandezs own two vehicles and their home, on which they have a mortgage. They will face many financial challenges over the next 20 years, as their children drive, go to college and leave home and go out in the world on their own. Victor and Maria also recognize the need to further prepare for their retirement and the challenges of aging, Victor and Maria spent some time making up their first balance sheet, which is shown in the table. Balance Sheet for a couple with Two Children-Victor and Maria Hernandez, January 1, 2018 Dollars Percent ASSETS Monetary Assets Cash on hand Savings account Victor's checking account Maria's checking account Tax refund due Rent receivable Total Monetary Assets Tangible Assets Home 192,000 Personal property 9,000 Automobiles 9,500 COMMENTS FILES RUBRIC 9,000 9,500 $210,500 5,000 Personal property Automobiles Total Tangible Assets Investment Assets Fidelity mutual funds Scudder mutual fund Ford Motor Company stock New York 2038 bonds Life insurance cash value IRA accounts Real estate investment Total Investment Assets Total Assets LIABILITIES Short-Term liabilities Dentist bill Credit card debt Total Short-term Liabilities Long-Term liabilities Vehicle loan Home mortgage loan Total long-term liabilities Total Liabilities 4,500 2,500 4,000 5,300 34,500 113,000 $168,800 $392,050 220 1,500 1,720 $ 7,400 92,100 $ 99,500 $101,220 25.8 25.8 Total Liabilities Net Worth Total Liabilities and Net Worth $101,220 $290,830 $392,050 74.2 100.0 Victor and Maria are a bit confused about how various financial activities can affect their net worth a. Assume that their home is now appraised at $200,000 and the value of their automobile has dropped to $8,300. Calculate and characterize the effects of these changes on their net worth Round your answer to the nearest dollar Net worth would increase by $ 6,800 because the value of the real estate rose more than the value of the car declined. Calculate the effects of these changes on their asset-to-debt ratio. Round your answers to three decimal places. Old asset-to-debt ratio: New asset-to-debt ratio: 3.94 b. If Victor and Maria take out a bank loan for $1,500 and pay off their credit card debts totaling $1,500, what effects would these changes have on their net worth? the Hernandezs' net worth Taking out a bank loan to pay off the credit card liability would not affect c. If Victor and Maria sell their New York 2038 bond and put the cash into the savings account, what effects would this have on their net worth and liquidity ratio? Assume their annual expenses are $81,459. Round your answers to three decimal places Selling the New York bond would not affect The liquidity ratio would increase from the Hernandezs' net worth. 3 to 7.41 3 Budgeting and Income Projections Leyla and Larry Hartley of Columbus, Ohio have decided to start a family next year, so they are looking over their budget (illustrated in Table 3-5 as the young married couple"). Leyla thinks that she can go on half-salary ($2,400 instead of $4,800 per month) in her job as a college textbook sales representative for about 18 months after the baby's birth, she will then return to full-time work. a. Looking at the Hartley's current monthly budget, identify categories and amounts in their budget where they realistically might cut back $2,400. (Hint: Federal and state taxes should drop about $600 a month ($7,200 annually) as their income drops.) The input in the box below will not be graded, but may be reviewed and considered by your instructor blank b. Assume that Leyla and Larry could be persuaded not to begin a family for another five years. What specific budgeting recommendations would you give them for handling (1) their foxed expenses and (t) their variable expenses to prepare financially for an anticipated $2,400 loss of income for 18 months as well as the expenses for the new baby? The input in the box below will not be graded, but may be reviewed and considered by your instructor blank c. If the Hartley's gross income of $8,830 rises 2 percent per year in the future, what will their income be after five years? Round Puture value of a Single Amount in intermediate calculations to four decimal places. (Hint Use Appendix A1 or the Garman/Forgue companion website. Round your answer to the nearest dollar Table 3-5 Sample Monthly Budgets for Various Family Units Single Working Person College Student Young Married Couple Married couple with Two College-Age Children Married Couple with Two Young Children $4,400 $1,000 0 $4,000 4,800 30 $4,000 4,400 30 $8,000 1,600 80 20 300 570 51,872 0 59.680 $4,420 $8,830 $8,430 5 250 $ 380 360 Classifications INCOME Salary 1 Salary 2 Interest and dividends Student loan withdrawals Savings withdrawals Total Income EXPENSES Fixed Expenses 4010) retirement savings IRA and Roth IRA contributions Savings automatically withheld Housing Health insurance State income taxes Life and disability insurance Homeowner/renter insurance Automobile insurance Vehicle loan payments Emergency Savings Student loan payments Loans Credit card payment Federal income taxes Social Security taxes 60 300 $ 500 200 400 900 280 80 200 200 120 200 0 1080 850 640 200 1,000 720 620 280 500 60 90 100 170 300 88 220 130 1080 670 300 135 $6.000 140 180 400 200 300 120 0 850 540 390 100 55,550 200 200 200 200 1,000 730 330 400 56.230 760 3,360 200 Health insurance State income tax Life and disability insurance Homeownerhenter insurance Automobile insurance Vehicle loan payments Emergency Savings Student loan payments Loans Credit card payment Federal income taxes Social Security taxes Real estate taxes Investments Total fixed expenses Variable expenses Other savings Food Utilities Automobile gas, oil, maintenance Medical expenses Child Care Clothing Gifts and charitable contributions Personal allowances Education expenses Furnishings and appliances Personal care Entertainment Vacations Miscellaneous Total variable expenses Total Expenses 130 500 20 600 580 240 300 110 600 70 120 500 300 250 150 200 $2.00 $8.830 60 50 52.880 $8.430 51,060 54.420 200 52.450 59.680 Appendix A-1 Future Value of a Single Amount (51 at the End of n Periods) (Used to compute the Compounded Future Value of a known Lump Sum) 12% 11% 11100 13% 14% 15% 16% 17% 11700 18% 19% 20% 1.1100 1100 1.1900 10% 11000 12100 13310 1.1934 1415 5609 1316 160 161 TS 14161 162 2.0053 14400 7780 2.0736 1515 10) n 1% 2% 3% 4% 5% 6% 7% 8% 9% 1 10100 1000 1000 1000 10500 10600 10700 100 100 2 10201 10404 1060 16116 11025 11236 11449 1181 31033 106121927 1129 1156 11910 2250 2 29 4 106 10624 11255 1699 12155 1262513103 105 14116 5 1050 11001 1190312167 2163 1302 160 161 1516 6 10615 1 140 145 150 1 16 7 6721 11 12 13 14 1 5 16 8 109 1717 1477 18 19 9 17 15 5513 15 2179 101 1046 2150 480 169 1708 672 213 2 11 1.1157 204 130 S 1.7103 21049 2016 0 12 1126 126 0 60 1959 01223522 25 1127 13 1.138112936 16 1665 196 213294098 21 00 14 1 13195 151X17117 11 22609575 291 MI 11610 350 100 2009 201 0 16 17 18 19 20 1) 110 00 000 154 2519 2 35 015 2017 2.8531 550 34523 37975 23179 2008 6. 7.1379 7 6.1521 7.0753 8.1371 9.35% TU 007 OM 110 11 111 112 15 10 175 TL 50 10.00 1 106 7 1666 166 000 0 a 1616 120202191126510 61025 21 204 5157 0 8 09 106 10 >> SO 162251 0S 0 S 6 0 21 572 5 6 6 05 10 105 4269 07 111 25 606 608 1037 26 16 225 555 50 112 13.1100 17000 3105651001 Financial planning case 3-2 Victor and Maria Hernandez Victor and Maria, both in their late 30s, have two children: John, age 13 and Joseph, age 15. Victor has had a long sales career with a retail appliance store. Maria works part-time as a medical records assistant. The Hernandezs own two vehicles and their home, on which they have a mortgage. They will face many financial challenges over the next 20 years, as their children drive, go to college and leave home and go out in the world on their own. Victor and Maria also recognize the need to further prepare for their retirement and the challenges of aging, Victor and Maria spent some time making up their first balance sheet, which is shown in the table. Balance Sheet for a couple with Two Children-Victor and Maria Hernandez, January 1, 2018 Dollars Percent ASSETS Monetary Assets Cash on hand Savings account Victor's checking account Maria's checking account Tax refund due Rent receivable Total Monetary Assets Tangible Assets Home 192,000 Personal property 9,000 Automobiles 9,500 COMMENTS FILES RUBRIC 9,000 9,500 $210,500 5,000 Personal property Automobiles Total Tangible Assets Investment Assets Fidelity mutual funds Scudder mutual fund Ford Motor Company stock New York 2038 bonds Life insurance cash value IRA accounts Real estate investment Total Investment Assets Total Assets LIABILITIES Short-Term liabilities Dentist bill Credit card debt Total Short-term Liabilities Long-Term liabilities Vehicle loan Home mortgage loan Total long-term liabilities Total Liabilities 4,500 2,500 4,000 5,300 34,500 113,000 $168,800 $392,050 220 1,500 1,720 $ 7,400 92,100 $ 99,500 $101,220 25.8 25.8 Total Liabilities Net Worth Total Liabilities and Net Worth $101,220 $290,830 $392,050 74.2 100.0 Victor and Maria are a bit confused about how various financial activities can affect their net worth a. Assume that their home is now appraised at $200,000 and the value of their automobile has dropped to $8,300. Calculate and characterize the effects of these changes on their net worth Round your answer to the nearest dollar Net worth would increase by $ 6,800 because the value of the real estate rose more than the value of the car declined. Calculate the effects of these changes on their asset-to-debt ratio. Round your answers to three decimal places. Old asset-to-debt ratio: New asset-to-debt ratio: 3.94 b. If Victor and Maria take out a bank loan for $1,500 and pay off their credit card debts totaling $1,500, what effects would these changes have on their net worth? the Hernandezs' net worth Taking out a bank loan to pay off the credit card liability would not affect c. If Victor and Maria sell their New York 2038 bond and put the cash into the savings account, what effects would this have on their net worth and liquidity ratio? Assume their annual expenses are $81,459. Round your answers to three decimal places Selling the New York bond would not affect The liquidity ratio would increase from the Hernandezs' net worth. 3 to 7.41 3