Ron and Janice Mawson are both graduates of UBC and they have been married for five years. They are currently interested in buying a house and a new vehicle. Ron works as a Physician in Vancouver and he earns $8,000.00 net per month after tax and deductions. Janice is a teacher at a local school where she earns $3,000 net per month after tax and deductions. Their combined gross salaries are $200,000 per year. They are looking at buying a house that is listed for $525,000 and that would be amortized over 25 years at an annual interest rate of 4.75%. There would be additional costs associated with the property including annual property taxes of $5,200, home insurance of $150 per month, and estimated monthly heat and hydro costs of $250 per month. There would also be additional closing costs associated with the property purchase including property transfer tax on the purchase value paid as a lump sum up front. They plan on making a 20% down payment on the purchase price of the property. The vehicle they are considering purchasing is a Subaru Forester which is retailing for $32,650 including taxes, etc, and the dealer is offering zero down with interest at 6.0% for the duration of the loan which would be for seven years. This would be driven mainly by Ron and he would be responsible for the loan. Janice owns a 2008 Toyota Camry with a market value of $15,000. As far as assets and liabilities go Ron and Janice have RRSP's worth $100,000 and $60,000 respectively, and they also have a combined savings/chequing account worth $35,000. Ron has student loans of $100,000 that are being repaid at 5.5% over a 10 year term. Janice received a $100,000 inheritance and she has these funds sitting in a money market account. They each also have a CIBC Visa that carries an 17% interest rate and requires minimum payments of 3% per month. The balance on Ron's card is $10,000 and Janice owes $5,000. They each have lines of credit where they could each borrow $30,000 at prime + 1% (interest only) if they needed to. Their personal possessions are worth approximately $50,000 each. They expect to spend - $1000 per month on food - $600 per month on entertainment estimated auto insurance will cost $150 per month for Ron and $125 for the Janice . estimated fuel costs of $300 each per month .gym membership for Ron of $100 per month fitness classes for Janice of $150 per month . Ron spends approximately $600 per month on lunches eating out they each spend $1,500 per year on gifts for friends and family they expect personal care (haircuts, grooming) to cost $150 per month clothing/dry-cleaning is expected to cost a total of $175 per month household cleaning supplies will cost $100 per month . they also expect that they spend $300 per month each on miscellaneous items like coffee, newspapers, etc. .$600 per month on entertainment estimated auto insurance will cost $150 per month for Ron and $125 for the Janice estimated fuel costs of $300 each per month gym membership for Ron of $100 per month .fitness classes for Janice of $150 per month . Ron spends approximately $600 per month on lunches eating out they each spend $1,500 per year on gifts for friends and family they expect personal care (haircuts, grooming) to cost $150 per month clothing/dry-cleaning is expected to cost a total of $175 per month household cleaning supplies will cost $100 per month . they also expect that they spend $300 per month each on miscellaneous items like coffee, newspapers, etc. REQUIRED - 75 marks 1. Prepare a net worth statement for Ron and Janice using the asset and liability information provided. Assume they have purchased the house and car at the prices indicated along with property transfer tax (12) 2. Prepare a cash flow statement for Ron and Janice using the income and expense information provided. What is the monthly cash flow surplus/deficit? (35) 3. What are three things they can do with their cash flow surplus? (3) 4. What term would you recommend on the mortgage and why? Assume we are in a neutral interest rate environment. What would be the advantages/disadvantages of taking out a long term mortgage? (4) 5. What are two "additional" costs they may have relating to the purchase of the property? How much additional cash should they set aside for this? (2) 6. If they want to pay off their credit cards as soon as possible how should they do it? How will this affect their cash flow going forward? (4) 7. Given that they have made a down payment of 20% on the house - how much will this save them in CMHC insurance? (2) 8. Given the size of Ron's auto loan payment, are there any strategies that he could have used to reduce this payment? (2) If he reduced the payment, how would you recommend Ron allocate the additional funds? (2) In addition, would there be any benefits to him leasing the vehicle? (2) 9. If the bank allowed for a TDS ratio of 28% what would be the maximum mortgage they would have qualified for? (4) 10. Ron has taken the mutual funds course and wants to borrow money for to invest in precious metals funds. He considers himself a sophisticated investor and has a high risk tolerance. What are some of the benefits and risks associated with this strategy? (3) Ron and Janice Mawson are both graduates of UBC and they have been married for five years. They are currently interested in buying a house and a new vehicle. Ron works as a Physician in Vancouver and he earns $8,000.00 net per month after tax and deductions. Janice is a teacher at a local school where she earns $3,000 net per month after tax and deductions. Their combined gross salaries are $200,000 per year. They are looking at buying a house that is listed for $525,000 and that would be amortized over 25 years at an annual interest rate of 4.75%. There would be additional costs associated with the property including annual property taxes of $5,200, home insurance of $150 per month, and estimated monthly heat and hydro costs of $250 per month. There would also be additional closing costs associated with the property purchase including property transfer tax on the purchase value paid as a lump sum up front. They plan on making a 20% down payment on the purchase price of the property. The vehicle they are considering purchasing is a Subaru Forester which is retailing for $32,650 including taxes, etc, and the dealer is offering zero down with interest at 6.0% for the duration of the loan which would be for seven years. This would be driven mainly by Ron and he would be responsible for the loan. Janice owns a 2008 Toyota Camry with a market value of $15,000. As far as assets and liabilities go Ron and Janice have RRSP's worth $100,000 and $60,000 respectively, and they also have a combined savings/chequing account worth $35,000. Ron has student loans of $100,000 that are being repaid at 5.5% over a 10 year term. Janice received a $100,000 inheritance and she has these funds sitting in a money market account. They each also have a CIBC Visa that carries an 17% interest rate and requires minimum payments of 3% per month. The balance on Ron's card is $10,000 and Janice owes $5,000. They each have lines of credit where they could each borrow $30,000 at prime + 1% (interest only) if they needed to. Their personal possessions are worth approximately $50,000 each. They expect to spend - $1000 per month on food - $600 per month on entertainment estimated auto insurance will cost $150 per month for Ron and $125 for the Janice . estimated fuel costs of $300 each per month .gym membership for Ron of $100 per month fitness classes for Janice of $150 per month . Ron spends approximately $600 per month on lunches eating out they each spend $1,500 per year on gifts for friends and family they expect personal care (haircuts, grooming) to cost $150 per month clothing/dry-cleaning is expected to cost a total of $175 per month household cleaning supplies will cost $100 per month . they also expect that they spend $300 per month each on miscellaneous items like coffee, newspapers, etc. .$600 per month on entertainment estimated auto insurance will cost $150 per month for Ron and $125 for the Janice estimated fuel costs of $300 each per month gym membership for Ron of $100 per month .fitness classes for Janice of $150 per month . Ron spends approximately $600 per month on lunches eating out they each spend $1,500 per year on gifts for friends and family they expect personal care (haircuts, grooming) to cost $150 per month clothing/dry-cleaning is expected to cost a total of $175 per month household cleaning supplies will cost $100 per month . they also expect that they spend $300 per month each on miscellaneous items like coffee, newspapers, etc. REQUIRED - 75 marks 1. Prepare a net worth statement for Ron and Janice using the asset and liability information provided. Assume they have purchased the house and car at the prices indicated along with property transfer tax (12) 2. Prepare a cash flow statement for Ron and Janice using the income and expense information provided. What is the monthly cash flow surplus/deficit? (35) 3. What are three things they can do with their cash flow surplus? (3) 4. What term would you recommend on the mortgage and why? Assume we are in a neutral interest rate environment. What would be the advantages/disadvantages of taking out a long term mortgage? (4) 5. What are two "additional" costs they may have relating to the purchase of the property? How much additional cash should they set aside for this? (2) 6. If they want to pay off their credit cards as soon as possible how should they do it? How will this affect their cash flow going forward? (4) 7. Given that they have made a down payment of 20% on the house - how much will this save them in CMHC insurance? (2) 8. Given the size of Ron's auto loan payment, are there any strategies that he could have used to reduce this payment? (2) If he reduced the payment, how would you recommend Ron allocate the additional funds? (2) In addition, would there be any benefits to him leasing the vehicle? (2) 9. If the bank allowed for a TDS ratio of 28% what would be the maximum mortgage they would have qualified for? (4) 10. Ron has taken the mutual funds course and wants to borrow money for to invest in precious metals funds. He considers himself a sophisticated investor and has a high risk tolerance. What are some of the benefits and risks associated with this strategy? (3)