(a) Briefly describe how Harry and Belinda probably determined the fair market prices for each of their tangible and investment assets.
(b) Using the data from the cash-flow statement developed by Harry and Belinda, calculate a liquidity ratio, asset-to-debt ratio, debt-to-income ratio, debt payments-to-disposable income ratio, and investment assets-to-total assets ratio. What do these ratios tell you about the Johnsons’ financial situation? Should Harry and Belinda incur more debt, such as credit cards or a new car loan?
(c) The Johnsons enjoy a high income because both work at well-paying jobs. They have spent parts of three evenings over the past several days discussing their financial values and goals together. As shown in the upper portion of Figure 3-5, they have established three long-term goals: $3000 for a European vacation to be taken in 2018, $5000 needed in October 2019 for a down payment on a new automobile, and $18,900 for a down payment on a home to be purchased in December 2020. As shown in the lower portion of the figure, the Johnsons did some calculations to determine how much they had to save for each goal—over the near term—to stay on schedule to reach their long-term goals as well as pay for two vacations and an anniversary party. After developing their balance sheet and cash-flow statement (shown below), the Johnsons made a budget for the year. They then reconciled various conflicting needs and wants until they found that total annual income was close to the total of planned expenses. Next, they created a revolving savings fund (Table 3-8 on page 89) in which they were careful to include enough money each month to meet all of their short-term goals. When developing their cash-flow calendar for the year, they noticed a problem: substantial cash deficits toward the end of the year. In fact, despite their projected high income, they anticipate a deficit of $1530 for the year. To solve this problem, they do not anticipate increasing their income, using savings, or borrowing. Instead, they are considering modifying their needs and wants to reduce their budget estimates to the point where they would have a positive balance for the year. Make specific recommendations to the Johnsons on how they could make reductions in their budget estimates. Do not offer suggestions that would alter their new lifestyle drastically, as the couple would reject these ideas.

Harry graduated with a bachelor’s degree in interior design last spring from a large Midwestern university near his hometown. Belinda has a degree in information technology from a university on the West Coast and is employed in a medium-size public relations firm. Harry and Belinda both worked on their schools’ student newspapers and met at a conference during their junior year in college. They were married last June and live in an apartment in Kansas City. They will face many financial challenges over the next 20 years, as they buy their first home, decide on life insurance needs, begin a family, change jobs, and invest for retirement.