Assume the following annual financial information for Kelli (age 30):

Income (after taxes) : $80,000
Savings : $2,500
Rent: $18,000
Dry Cleaning $200
Entertainment $2,000
Utilities $1,800
Car Payment $6,600
Auto Insurance $2,400
Student Loans $6,000
Credit Cards $1,200

Utilizing targeted benchmarks, which of the following statements is FALSE regarding Kelli’s financial situation?

a. Kelli's Housing Ratio 1 is adequate.
b. Kelli's emergency fund is adequate.
c. Kelli's Housing Ratio 2 is deficient.
d. Kelli's current ratio is less than 1

Utilizing investment assets to gross pay benchmarks, which of the following individuals is likely on target with their investment assets?

a. Jery age 55 earns $120,000 a year and has invested assets of $450,000.
b. Liam age 25 earns $45,000 a year and has invested assets of $5,500.
c. Sarah age 35 earns $90,000 a year and has invested assets of $325,000.
d. Alex age 45 earns $110,000 a year and has invested assets of $170,000.

Use the following financial information for Jay (age 30) and Maria (age 30) Handberger:
a. Cash and Cash Equivalents: $75,000
b. Investment Assets: $220,000
c. Personal Use Assets: $350,000
d. Current Liabilities: $45,000
e. Long-Term iabilities: $300,000

Before your next meeting with the Handberger's, you create a pie chart to visually depict their current balance sheet. Utilizing targeted benchmarks, which of the following statements are you most likely to make during your next meetang?

a. "Your investment assets make up 34% of your asset pie chart, which is too low for your age group.
b. "Given your assets and liabilities, your net worth is appropriate for your age group.
c. "Relative to the rest of your assets, your cash and cash equivalents are too low for your age group.
d. "Compared to your net worth and current liabilities, your long-term liabilities are excessive for your age group.

The ratio of Kelli's emergency fund is not adequate. Emergency fund ratio reveals the overall non-discretionary expenses for 3-6 months to be kept aside from the gross earnings. Kelly's non-discretionary income every month is $34,800 (rent + student loan + car payment + auto insurance + credit card outstanding). Her savings are $2,500. Which is not adequate. It should be, in this case, minimum of 3 times ($34,800)

Housing ratio 1, 2 are adequate

Expenses that are towards rent from gross/net income is 22% which is below the ideal benchmark of 28%, 36% for Housing Ratio 1 and 2 respectively.

Current ratio is less than 1

Cash and cash equivalent savings/(short-term liabilities)

ratio = 0.15 [i.e; 2500/(6600+2400+6000+1200)]

Sarah is likely on target her investment assets shown as below table, calculated values

Name Age Earns Invested ratio remarks ideal

Jerry 55 120,000 450,000 3.75 slightly less 4

Liam 25 45,000 5,500 0.12 less than required 1.5

Sarah 35 90,000 325,000 3.61 adequate 3

Alex 45 110,000 170,000 1.55 less than required 2

With regards to Jay, Maria option (c) is true. i.e; Relative to the rest of their assets, cash and cash equivalents are too low for their age group. Ideally 10%-15% is the emergency fund to be kept for age group 30 years. Attached is the excel sheet for pie-chart and workings.

yahayadanjuma55 yahayadanjuma55 · Answer 2 · 2020-05-06T04:14:37+02:00

Answer:

1. b. Kelli's emergency fund is adequate

2. c. Sarah age 35 earns $90,000 a year and has invested assets of $325,000

3.b. "Given your assets and liabilities, your net worth is appropriate for your age group.

Explanation:

Base on the scenario been described in the question,Investment assets make up 34% of your asset pie chart, which is a good level for someone in their 30s (Benchmark:0-30%). Net worth is $300,000 or 46.5%, which is appropriate given the Handberger’s ages (Benchmark: 8-50%). Cash and cash equivalents make up 11.6% of assets (Benchmark: 5-20%). Long-term liabilities make up 46.5%, an adequate level