Question

This is one full study question. Is someone able to answer the following components of the question for me? a,b,c,d

Kira is 32 years of age and works full time for a manufacturing company as a supervisor. She earns $4,200 a month, net. She has no other sources of income. Her employer offers her benefits, including a Group RRSP. The employer matches 50% of her RRSP contribution, which is 10% of her monthly take home pay. As a result of these contributions she regularly receives a tax refund of $540. The current account balance is $48,669. **RRSP contributions are before-tax**

She also contributes 10% of her take home pay to a TFSA account through automatic deposits. **These are after-tax.** The current account balance in her TFSA is $36,820. She has doesn’t have much investment experience but has heard that automating savings is an easy way to get rich!

Kira’s grandmother passed away leaving an inheritance of $50,000. She holds these funds in a non-registered account at her local bank branch invested in high interest savings. Her bank account has a current balance of $2,240.

Kira currently rents a condo unit for $2,000 a month. She also has to pay an additional $50 a month for parking. Her car is fairly new, valued at $30,000. There is an outstanding loan of $14,625 which requires monthly payments of $275. Other monthly expenses include: hydro $100, car insurance $2,100 a year, tenant insurance $25, gym membership $80, groceries $95, eating out $150, car maintenance $200 (all inclusive), cell phone $75, student loan payment $325 (outstanding balance of $22,850), entertainment & vacations $3,000 a year.

She plans on buying a house with her fiancé next year. They have determined they can afford a mortgage of $3,000. The property taxes are estimated to be $7,200 annually and utilities will increase to $400 a month. Home insurance will be $10 a month more than her tenant insurance but she will no longer have to pay for parking! Her fiancé earns $3,900 a month, net. Once they move in together these specific monthly expenses – gym, groceries, cell, eating out, vacations are expected to total $2,500. In addition, they would each like to save $100 a month to build an emergency fund.

1. Create a monthly cash flow statement for Kira. (10 marks)
2. Create a net worth statement for Kira. (5 marks)
3. Analyze her current financial situation using relevant financial ratios. Explain each ratio specific to her situation. (12 marks)
4. Draft a budget for Kira and her fiancé for after they buy the home. If they have a negative cash flow suggest an option for them to create a positive cash flow. (8 marks)

Answer 1

a. Kira Monthly cash flow
		Formula
Income from salaries	4200	4200
Add: Tax refund	540	540
Less: Amount contributed to TFSA	420	420
Less: Payments for Condo unit	2000	2000
Less: Amount paid for parking	50	50
Less: Car installment	275	275
Less: Other monthly payments	1475	100+2100/12+25+80+95+150+200+75+325+3000/12
Closing cash balance	520
Here asking for monthly cash flow so I consider only one month for the insurance payment of 2100 per year
b. Net worth statement:
Account balance in RRSP contributions	48669
Account balance in TFSA	36820
Funds from grandmother	50000
Car	30000
Bank Balance	2240
	167729
Loans:
Outstanding balance of car loan	14625
Student loan	22850
	37475
Net worth of Kira	130254
C. As of now the net cash inflow is $ 520 but the insurance amount paid is $ 2100. So there is negative
cash flow. The funds from the RRSP, TFSA and Bank balances are can be utilised to pay the negative
amount. The current ratio and liquidity ratio is also good because the balances in the Banks or in TFSA or in
RRSP and liquid in nature and the current ratio is also will be good as the current assets are more than
current liabilities
d. Implications of after buying the home is:
Mortgage amount	3000
Propety taxes	600
Utilities	400
Home insurance	10
Other monthly expenses(for both)	2500
Savings for future	200
Amount contributed to TFSA	420
Car installment	275
Car insurance	175
Car maintainance	200
student loan payment	325
	8105
Monthly income of Kira	4200
Monthly income of Kira fieance	3900
Tax refund per month	45
	8145
Here they have a positive cash flow