Victor and Maria Hernandez Victor and Maria, both in their late 30s, have two children: John, age 13, and Joseph, age 15. Victor has had a long sales career with a retail appliance store. Maria works part-time as a medical records assistant. The Hernandezes own two vehicles and their home, on which they have a mortgage. They will face many financial challenges over the next 20 years, as their children drive, go to college, and leave home and go out in the world on their own. Victor and Maria also recognize the need to further prepare for their retirement and the challenges of aging. Victor and Maria spent some time making up their first balance sheet, which is shown in Table 3-2. Victor and Maria are a bit confused about how various financial activities can affect their net worth.

(a) Assume that their home is now appraised at $200,000 and the value of their automobile has dropped to $8,500. Calculate and characterize the effects of these changes on their net worth and on their asset-to-debt ratio.

Jalle 3-2Balance Sheet for a Couple with Two Children-Victor and Maria Hernandez, January 1, 2018 ASSETS Monetary Assets Cash on hand Savings account Victors checking account Maria's checking account Tax refund due Rent receiwable Total Monetary Assets 1,200 4,200 2,700 3,300 700 650 $ 12,750 0.3% 1.1% 0.7% 0.8% 0.2% 0.2% 3.2% Tangible Assets Home Personal property Automobiles Total Tangible Assets 192,000 9,000 9,500 $210,500 48.8% 2.3% 2.4% 53.5% Investment Assets Fidelity mutual funds Scudder mutual fund Ford Motor Company stock New York 2038 bonds Life insurance cash value RA accounts Real estate investment Total Investment Assets Total Assets 4,500 5,000 2,800 4,000 5,400 34,300 114,000 $170,000 $393,250 1.1% 1.3% 0.7% 1.0% 1.4% 8.7% 29.0% 43.2% 100.0% LIABILITIES Short-Term Liabilities Dentist bill due Credit card debt Total Short-Term Liabilities 220 1,600 $ 1,820 0.1% 0.4% 0.5% Long-Term Liabilities Vehidle loan Home mortgage loan Total Long-Term Liabilities Total Liabilities Net Worth Total Liabilities and Net Worth 7,700 92,000 $ 99,700 $101,520 $291,730 $393,250 20% 23.4% 25.4% 25.8% 74.2% 100.0%