FNCE-3005 Case Details September 2020 David is surprised by how much money he spends monthlyon clothes ($150) and entertainment ($350). He uses his credit card forthese purchases (the balance is $8000 and climbing) and has little trouble making the required minimum monthly payment. He would, however, like to gain control over his finances and see the balance go down to eventually pay his credit cardoff completely. David's other goal is to save $4800 a year so that he can retire 28 years from now at 55. He would like to startsaving in five years, so he can pay off his credit card and car first. He does not think the delay will affect the final amount of retirement savings he will accumulate. David currently has about $3500 in his chequing account and $200 in his savings account. He has furniture valued at$1500 and owns 1000 shares of an internetstock, currently valued at $1200, which he believes has the potential to make him rich. Part 2 The information you found out from David took some time to uncover. He does not have all this information in one place. David should have a personal cash flow and net worth statement Part 3 David also wants to know what factors he should consider when selecting a financial institution. He is mostly interested in financial institutions that will assist him in making investment and money management decisions. He finds savings accounts boring and has nodesire to have one because the interest rate is so low. Secondly, he has decided that itis time to upgrade hiscar; however, he is concerned about his liquidity. Hiscreditcard, with a $65 annual feeand 21 percentannual interest rate, compounded daily, is nearing its credit limit of $10000. He is reluctant to sell his stock togetcash topay off part of thecredit balance. Recall that Davidthinks his stock has the potential to make himrich. Davidis questioning whether topayoff his creditcard.Hecaneasily afford the required minimum monthly payment and sees no reason to pay off the balance. In order to address his liquidity concerns, David has thinks he can more closely monitor the cost of his cutting and entertainment expenses. He was not happy with seeing the personal net worth statement when it was completed by you in Part 2 Page 212 Part 1 Family friend, David Robertson, has asked you to help him gain control of his personal finances. Single and 27 years old, David was recently employed as a salesperson for a technology company. His annual salary is $63 000. He has payroll deductions for El and CPP contributions, and income taxes of $1400 per month. David also recently moved from his comfortable two-bedroom apartment with rent of $1250 per month to a two-bedroom condo with rent of $1600 per month, utilities are included. The condo is in in an executive community with access to two golf courses, a lake, and an activity centre. David currently owns a car valued at $11 000 with an outstanding loan balance of $10 000. After having reviewed his other monthly expenses since the move, you have uncovered the following: ITEM $ AMOUNT/ MTH Tenant's insurance $ 20 Car payment 550 Smartphone, Internet and Netflix 210 Smartphone 75 Food (consumed at home) 200 Car Expenses (gas, insurance, maintenance) 310 Credit Card payment 740 Page 12 Part 1: Questions and Answers 1) What is David's financial planning life stage? (1 mark) 2) With respect to his current financial position, what are some of the things that David should be considering? (2 marks) 3) What are David's three major goals? (1 mark) 4) Evaluate his goals with respect to the S.M.A.R.T. guidelines. (3 marks) I Part 2 1) Prepare a personal cash flow statement for David. (5 marks) 2) Prepare a net worth statement for David. (5 marks) I 3) Based on these statements, make specific recommendations for David about what he needs to do to achieve his goals you noted in Part 1 - Question 3. Explain the financial impact in detail. (8 marks) 4) Consider David's goal to retire in 28 years by saving $4800 per year starting in 5 years from now. a. Based on your analysis of David's cash flow and your recommendations so far, is saving $4800 per year a realistic goal? If not, what would you advise David to do? (2 marks) 4) Consider David's goal to retire in 28 years by saving $4800 per year starting in 5 years from now. a. Based on your analysis of David's cash flow and your recommendations so far, is saving $4800 per year a realistic goal? If not, what would you advise David to do? (2 marks) b. In order for David to know what his $4800 per year will accumulate to in 28 years, what additional assumption (or piece of information) must he make (or have)? (2 marks) c. Assuming that David invests the $4800 per year until his retirement goal of 55, starting I five years from now, and achieves an annual return of 6 percent, compounded monthly, how much will he accumulate? (2 marks) d. If instead of waiting 5 years, David was able to start saving now for 28 years, how much would he have to save each month to accumulate the same amount of wealth? (2 marks) Part 3 1) What factors should David consider in selecting a financial institution? (2 marks) I 2) If David's stock doubles over the next five years: a. What nominal rate of return, compounded quarterly, will he realize? (1 mark) b. Based on his projected effective rate of return? Would it be advisable to sell the stock to pay off his credit card debt? Explain. (2 marks) c. Should David consider shopping for a new credit card? Explain. (2 marks) 3) What would you say to David to address his reluctance to pay off his Credit Card balance? Show him what he could earn in five years if he paid it off and invested the $240 minimum monthly payment at 6% compounded monthly. (4 marks) FNCE-3005 Case Details September 2020 David is surprised by how much money he spends monthlyon clothes ($150) and entertainment ($350). He uses his credit card forthese purchases (the balance is $8000 and climbing) and has little trouble making the required minimum monthly payment. He would, however, like to gain control over his finances and see the balance go down to eventually pay his credit cardoff completely. David's other goal is to save $4800 a year so that he can retire 28 years from now at 55. He would like to startsaving in five years, so he can pay off his credit card and car first. He does not think the delay will affect the final amount of retirement savings he will accumulate. David currently has about $3500 in his chequing account and $200 in his savings account. He has furniture valued at$1500 and owns 1000 shares of an internetstock, currently valued at $1200, which he believes has the potential to make him rich. Part 2 The information you found out from David took some time to uncover. He does not have all this information in one place. David should have a personal cash flow and net worth statement Part 3 David also wants to know what factors he should consider when selecting a financial institution. He is mostly interested in financial institutions that will assist him in making investment and money management decisions. He finds savings accounts boring and has nodesire to have one because the interest rate is so low. Secondly, he has decided that itis time to upgrade hiscar; however, he is concerned about his liquidity. Hiscreditcard, with a $65 annual feeand 21 percentannual interest rate, compounded daily, is nearing its credit limit of $10000. He is reluctant to sell his stock togetcash topay off part of thecredit balance. Recall that Davidthinks his stock has the potential to make himrich. Davidis questioning whether topayoff his creditcard.Hecaneasily afford the required minimum monthly payment and sees no reason to pay off the balance. In order to address his liquidity concerns, David has thinks he can more closely monitor the cost of his cutting and entertainment expenses. He was not happy with seeing the personal net worth statement when it was completed by you in Part 2 Page 212 Part 1 Family friend, David Robertson, has asked you to help him gain control of his personal finances. Single and 27 years old, David was recently employed as a salesperson for a technology company. His annual salary is $63 000. He has payroll deductions for El and CPP contributions, and income taxes of $1400 per month. David also recently moved from his comfortable two-bedroom apartment with rent of $1250 per month to a two-bedroom condo with rent of $1600 per month, utilities are included. The condo is in in an executive community with access to two golf courses, a lake, and an activity centre. David currently owns a car valued at $11 000 with an outstanding loan balance of $10 000. After having reviewed his other monthly expenses since the move, you have uncovered the following: ITEM $ AMOUNT/ MTH Tenant's insurance $ 20 Car payment 550 Smartphone, Internet and Netflix 210 Smartphone 75 Food (consumed at home) 200 Car Expenses (gas, insurance, maintenance) 310 Credit Card payment 740 Page 12 Part 1: Questions and Answers 1) What is David's financial planning life stage? (1 mark) 2) With respect to his current financial position, what are some of the things that David should be considering? (2 marks) 3) What are David's three major goals? (1 mark) 4) Evaluate his goals with respect to the S.M.A.R.T. guidelines. (3 marks) I Part 2 1) Prepare a personal cash flow statement for David. (5 marks) 2) Prepare a net worth statement for David. (5 marks) I 3) Based on these statements, make specific recommendations for David about what he needs to do to achieve his goals you noted in Part 1 - Question 3. Explain the financial impact in detail. (8 marks) 4) Consider David's goal to retire in 28 years by saving $4800 per year starting in 5 years from now. a. Based on your analysis of David's cash flow and your recommendations so far, is saving $4800 per year a realistic goal? If not, what would you advise David to do? (2 marks) 4) Consider David's goal to retire in 28 years by saving $4800 per year starting in 5 years from now. a. Based on your analysis of David's cash flow and your recommendations so far, is saving $4800 per year a realistic goal? If not, what would you advise David to do? (2 marks) b. In order for David to know what his $4800 per year will accumulate to in 28 years, what additional assumption (or piece of information) must he make (or have)? (2 marks) c. Assuming that David invests the $4800 per year until his retirement goal of 55, starting I five years from now, and achieves an annual return of 6 percent, compounded monthly, how much will he accumulate? (2 marks) d. If instead of waiting 5 years, David was able to start saving now for 28 years, how much would he have to save each month to accumulate the same amount of wealth? (2 marks) Part 3 1) What factors should David consider in selecting a financial institution? (2 marks) I 2) If David's stock doubles over the next five years: a. What nominal rate of return, compounded quarterly, will he realize? (1 mark) b. Based on his projected effective rate of return? Would it be advisable to sell the stock to pay off his credit card debt? Explain. (2 marks) c. Should David consider shopping for a new credit card? Explain. (2 marks) 3) What would you say to David to address his reluctance to pay off his Credit Card balance? Show him what he could earn in five years if he paid it off and invested the $240 minimum monthly payment at 6% compounded monthly. (4 marks)