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PROBLEM THREE Charles Gagnon and Cathy Van are employed by different companies. They earn the same amount of income and share a similar lifestyle. However, each receives a differ- ent type of remuneration. Charles earns a total of $50,000, which is paid in the form of a monthly salary. His annual personal expenses (excluding income tax) are shown in Table A, below. Cathy also earns $50,000 annually. Her remuneration is as shown in Table B. Her personal expenses (excluding income tax) are shown in Table C. Both Charles and Cathy pay income tax at a rate of 40%. Both invest any savings in an effort to build up a substantial investment portfolio. Required: (a) For the current year, compare Cathy's after-tax cash flow with that of Charles, and determine the amount each has available to add to an investment portfolio. (Ignore El and CPP). (b) What amount of salary would Charles have to receive in order to have the same amount of cash available for his investment portfolio as Cathy has? A. Life insurance ($100,000) S 1,000 Lease payments on automobile 6,000 Interest on house mortgage (10% on $70,000) 7,000 Family private medical insurance 1,000 Golf club dues 2,000 Automobile operating expenses 3,000 Other personal living expenses 9.000 $29,000 Salary $39,000 Private medical insurance 1,000 Group term life insurance ($100,000) 1,000 Lease payments on company automobile used 6,000 personally by Cathy Low-interest (5%) loan of $20,000: Prescribed interest rate (10%) $2,000 Actual interest charged (5%) (1,000) 1,000 Paid golf club dues (benefits employer) 2,000 $50,000 C. Interest on house mortgage: 10% of $50,000 $ 5,000 Interest on employee loan used to acquire house: 5% of $20,000 1,000 Automobile operating costs 3,000 Other personal living expenses 9,000 $18,000