Ledio and Isabel Greene
5.Ledio and Isabel Greene have the following assets, liabilities, income, and expenses. Use this information to answer the questions that follow:
•Yearly income: $99,000
•Value of home: $190,000
•Value of cars: $32,000
•Monetary Assets: $30,000
•Mortgage on house: $150,000 with twenty-four years remaining on the loans
•Auto loans: $14,000 with three years remaining on the loans
•Student loans: $92,000 with five years remaining on the loans
•Mortgage payment: $1,200
•Utilities: $500
•Car payments: $550
•Groceries: $900
•Taxes: $3,000
•Discretionary expenses: $1,000
a.What is their current net worth situation?
b.What is their current discretionary cash flow position?
c.What is their current ratio?
d.What is their debt ratio?
e.What is their savings ratio (assume that any discretionary cash flow is used for savings)?
f.Ledio and Isabel are considering purchasing a new car. The car will cost $30,000. They plan to borrow the entire amount of the car purchase. By how much will their net worth increase or decrease?
Part (a)
Assets | Linkage | $ |
Home | A | 190,000 |
Cars | B | 32,000 |
Monetary Assets | C | 30,000 |
Total Assets | D = A + B + C | 252,000 |
Liabilities | ||
Mortgage on house | E | 150,000 |
Auto loan | F | 14,000 |
Student loan | G | 92,000 |
Total Liabilities | H = E + F + G | 256,000 |
Part (a) Current networth situation | D - H | (4,000) |
Part (b)
Monthly Income | A | 8,250 |
Mortgage payment | B | 1,200 |
Utilities | C | 500 |
Car payments | D | 550 |
Groceries | E | 900 |
Taxes | F | 3,000 |
Part (b) Current discretionary cash flow position | G = A - Sum of B to F | 2,100 |
Part (c)
Annual expenses = 12 x monthly expenses = 12 x (1,200 + 500 + 550 + 900 + 3,000) = 73,800
Current Ratio = Monetary assets / Annual expenses = 30,000 / 73,800 = 0.4065
Part (d)
Debt ratio = total liabilities / total assets = 256,000 / 252,000 = 1.0159
Part (e)
Savings ratio = Discretionary position / income = 2,100 / 8,250 = 0.2545
Part (f)
Increase in net worth = Asset - liability = 30,000 - 30,000 = 0
Hence, the net worth will not change. It will remain the same.
Ledio and Isabel Greene 5.Ledio and Isabel Greene have the following assets, liabilities, income, and expenses....
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