John and Nina Hartwick, married 14 years, have a 10-year old daughter, Rita. Eight years ago, they purchased a home on which they owe a mortgage of $160,000. The home is appraised at $220,000. They also owe $6,000 on a two-year old automobile. The automobile is worth $12,000. All of their furniture (value $15,000) and second car (value $6,000) is paid for, but they owe a total of $18,120 on two high interest rate credit cards (19.99%). John is employed as an engineer and makes $85,000 a year. Nina works from home as a part-time graphic designer and earns $22,000 a year. Their combined monthly income after deductions for taxes and their portion of employer-sponsored health care is $6,200. John is eligible for his companys 401(k), but he does not contribute. His employer will match 100% up to 3% of his contributions. Ninas company does not offer a 401(k). About six months ago, the Hartwicks had what they now describe as a financial meltdown. It all started one Monday afternoon when the transmission on their second car had to be replaced. Although they thought it would be an easy fix, the mechanic told them the transmission would need a complete overhaul. Unfortunately, the warranty on the automobiles drive-train component was for 5 years or 50,000 miles. Since this car was just over 6 years old, they would have to pay for the repair, and the mechanic said it would cost about $2,100 to rebuild the transmission. They thought about buying a new car, but they did not think they could afford two car payments. At the time, they had about $3,500 in their savings account, which they had been saving for a summer vacation, and now they had to use their vacation money to fix the transmission. They have $2,000 in their checking account. Their Traditional IRA is valued at $51,000, and is in a Certificate of Deposit that earns 3% per year. For the Hartwicks, the fact that they did not have enough money to take a vacation was a wake-up call. They realized they were now in their mid-30s and had serious cash problems. According to John, We do not waste money to do the things we want to do. But according to Nina, The big problem is that we never have enough money to start an investment program that could pay for our daughters education or fund more money into our retirement account. They would both like to retire when they reach the age of 65 They decided to take a big first step in an attempt to solve their financial problems. They began by examining their monthly expenses for the past month. See page 3 for cash inflows and outflows. Once the Hartwicks realized they have a $250 surplus each month, they plan on replacing the $2,100 taken from their savings account to pay for repairing the transmission. Now it was time to take the next step.

4. What is the Hartwicks Debt-to-Equity Ratio? Assess in terms of the amount should be less than 1.00. Show detailed calculations.