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NAME DATE CHAPTER 1: THE SAMPSONS A Continuing Case CASE QUESTIONS 1 Help the Sampsons with their financial plans by filling out the worksheet below Goal 1: Purchase a new car for Sharon this year Plan to achieve Goal 1: Sharon will set aside savings of $500 per month until she has a down payment of $5,000 to buy a car. How can the Sampsons periodically evaluate whether their plan to achieve Goal 1 is successful? Goal 2: Pay for the childrens college Plan to achieve Goal 2 The Sampsons will set aside savings of $300 per month to save for their childrens college educations How can the Sampsons periodically evaluate whether their plan to achieve Goal 2 is successful? 2 Should the Sampsons make one of these goals a priority over the other goal?
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(1): Sampsons can periodically evaluate their plan to achieve Goal 1 and determine if it is successful or not by doing a liquidity analysis. There should be a tangible assessment of the family’s liquidity position and they will have to ensure that they have access to funds to cover any short-term cash deficiencies. Thus the $500 being set aside per month should be placed in liquid instruments which can be tapped easily in case of an emergency.

Sampsons can periodically evaluate their plan to achieve Goal 2 by estimating the future value of college education cost and then determining the future value of the monthly savings of $300 by using the prevailing interest rates/discount rates. The future value of savings should not be less than the future value of college education cost and if this is the case then their plan is successful.

(2): Yes, Sampsons should make Goal 2 a priority over goal 1. This is because goal 2 is a long term goal and the amount that has to be set aside for college education will need a longer period for accumulation. The other goal of buying a car can be deferred and met later when income increases but saving for college education cannot be deferred.

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