Review the financial statements of Victor and Maria Hernandez and the financial ratios provided below. Balance Sheet for a Couple with Two Children- Victor and Maria Hernandez, January 1, 2018 Dollars Percent ASSETS Monetary Assets Cash on hand 1,200 0.3 Savings account 4,200 1.1 Victor's checking account 2,700 0.7 Maria's checking account 3,300 0.8 Tax refund due 700 0.2 Rent receivable 650 0.2 Total Monetary Assets $ 12,750 3.3% Tangible Assets Home 192,000 49.2 Personal property 9,000 2.3 Automobiles 9,500 2.4 Total Tangible Assets $ 210,500 53.9% Investment Assets Fidelity mutual funds 4,000 1.0 Scudder mutual fund 4,500 1.2 Ford Motor Company stock 3,000 0.8 New York 2038 bonds 4,000 1.0 Life insurance cash value 5,300 1.4 IRA accounts 34,400 8.8 Real estate investment 112,000 28.7 Total Investment Assets $167,200 42.8% Total Assets $390,450 100% LIABILITIES Short-Term liabilities Dentist bill due 220 0.1 Credit card debt 1,600 0.4 Total Short-Term Liabilities $ 1,820 0.5% Long-Term liabilities Vehicle loan 6,900 1.8 Home mortgage loan 92,000 23.6 Total Long-Term Liabilities $ 98,900 25.3% Total Liabilities $100,720 25.8% Net Worth $289,730 74.2% Total Liabilities and Net Worth $390,450 100.0% Cash Flow Statement for a Couple with Two Children- Victor and Maria Hernandez, January 1, 2018 - December 31, 2018 Dollars Percent INCOME Victor's gross salary 53,000 55.4 Maria's salary (part-time) 32,000 33.4 Interest and dividends 1,800 1.9 Bonus 1,000 1.0 Tax refunds 200 0.2 Net rental income 7,720 8.1 Total Income $95,720 100.0% EXPENDITURES Fixed Expenses Mortgage loan payments 14,400 15.0 Real estate taxes 4,800 5.0 Homeowner's insurance 1,200 1.3 Automobile loan payments 6,000 6.3 Automobile insurance and registration 2,100 2.2 Life insurance premiums 1,200 1.3 Medical insurance (employee portion) 2,800 2.9 Emergency fund savings 2,400 2.5 Revolving savings fund 1,800 1.9 Federal income taxes 10,000 10.4 State income taxes 2,600 2.7 City income taxes 600 0.6 Social Security taxes 6,500 6.8 Personal property taxes 1,020 1.1 Retirement IRAs 6,000 6.3 Total fixed expenses $63,420 66.3% Variable Expenses Food 7,000 7.3 Utilities 3,600 3.8 Gasoline and maintenance 4,200 4.4 Medical expenses 3,400 3.6 Medicines 1,750 1.8 Clothing and upkeep 1,950 2.0 Church 2,400 2.5 Gifts 1,400 1.5 Personal allowances 3,000 3.1 Children's allowances 3,200 3.3 Miscellaneous 400 0.4 Total Variable Expenses $32,300 33.7% Total Expenses $95,720 100.0% SURPLUS (DEFICIT) $ 0 0.0% Ratios for Evaluating the Financial Progress Ratio Calculation Example Liquidity Ratio Monetary assets divided by monthly expenses $12,750/$7,977 = 1.60 ratio or about 1 1/2 months Asset-to-Debt Ratio Total assets/total debt $390,450/$100,720 = 3.877 or a 3.9 to 1 ratio Debt-to-Income Ratio Annual debt repayments/gross income 100 $20,400/$95,720 = 21.31% Debt Payments-to-Disposable Income Ratio Monthly nonmortgage debt payments/monthly disposable (not gross) income $500/$6,102 = 0.082 or 8.2% Investment Assets-to-Total Assets Ratio Investment assets/total assets $167,200/$390,450 = 0.428 or 42.8% Respond to the following questions. How would you interpret their investment assets to total assets ratio? This is an ratio for a couple with children. The Hernandez family appears to have too few monetary assets compared with tangible and investment assets. How would you suggest that they remedy that situation over the next few years? The input in the box below will not be graded, but may be reviewed and considered by your instructor. What are your thoughts on the Hernandez's liquidity ratio? How might they address any issues you see? The input in the box below will not be graded, but may be reviewed and considered by your instructor. Comment on the couples diversification of their investment assets. The input in the box below will not be graded, but may be reviewed and considered by your instructor. The Hernandezes seem to receive most of their income from employment rather than investments. What actions would you recommend for them to remedy that imbalance over the next few years? The input in the box below will not be graded, but may be reviewed and considered by your instructor. The Hernandezes want to take a two-week vacation next summer, and they have only eight months to save the necessary $3,400. What reasonable changes in expenses might they consider to increase net surplus and make the needed $425 per month ($3,400/8)? The input in the box below will not be graded, but may be reviewed and considered by your instructor.