Dan and Sue Kumar, 29 and 28, are trying to get ahead financially. They also want...
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Dan and Sue Kumar, 29 and 28, are trying to get ahead financially. They also want to buy two "big ticket" items (a house and a car) and pay for Dan to complete his university degree requirements. Their primary financial objective, however, is to reduce debt and achieve positive cash flow. The couple also has very little savings and would like to be able to put some money aside. They purchased the condo, their first home one year ago and the mortgage payment is $5,100 monthly. The Kumars are parents of a pre-school child and Sue is a stay-at-home mom. Dan is the sole breadwinner and earns $240,000 annually. Sue is interested in returning to the labor force but concerned about whether child care costs and taxes would wipe out whatever she would earn. Unfortunately, the Kumars are starting to face some financial difficulty. Monthly payments on their debts are consuming a greater percentage of their income and, along with their mortgage, don't leave them much income for other expenses. The couple has absolutely no money in savings for emergencies. Another indicator of financial distress is the couple's negative net worth. In other words, they owe more than they own. The couple's assets total $1,051,600 and include $6,000 in a checking account, $15,600 in Dan's pension plan, a $900,000 condo apartment, and two cars and personal property worth $130,000. On the debt side, the couple owes $840,000 on their mortgage, two personal loans totaling $60,000 with payments of $1,381 monthly, $32,000 on a credit card, $71,930 on a time share with monthly payments of $1,900, and $78,000 to Sue's parents. Their net worth (assets minus debts) is, thus, minus $30,330. The personal loan and time share loan has 54 and 51 months respectively before full repayment. The credit card is maxed out and Dan usually pays $4,000 monthly which covers the 2% monthly interest charge and the balance is spent on expenses. Dan says he would like to retire when he is 55 and "live comfortably and independently." Neither Sue nor Dan has individual retirement accounts or deferred annuities, however, and Dan has stopped contributing to his employer's matching pension plan. The couple has no wills. "I don't have money to pay a lawyer to do the will and am not sure how to do it without a lawyer," Dan explained. The couple has $1.8 million of term life insurance on Dan and family health insurance with a $1 Million per person major medical limit paid for by Dan's employer. They carry third party insurance on their cars and $500,000 of condo insurance. There is no disability insurance to cover the loss of Dan's income should he be unable to work due to accident or illness. Required: 1. Using current Trinidad & Tobago income tax, NIS and health surcharge rates, calculate Dan's monthly take-home earnings. (3 marks) 2. Using the take-home earnings figure calculated in question 1 and the information in the case; prepare a monthly income statement/budget for Dan and Sue. Make reasonable assumptions about living expenses such as car maintenance, groceries, etc. (5 marks) 3. Can Dan's retirement plan be achieved? Use appropriate time value of money calculations to justify your answer. (3 marks) 4. Prepare a financial plan for Dan and Sue to improve their financial position including a suggested retirement strategy and a revised monthly budget. Offer any additional personal financial advice you deem appropriate for (10 marks) Dan and Sue Kumar, 29 and 28, are trying to get ahead financially. They also want to buy two "big ticket" items (a house and a car) and pay for Dan to complete his university degree requirements. Their primary financial objective, however, is to reduce debt and achieve positive cash flow. The couple also has very little savings and would like to be able to put some money aside. They purchased the condo, their first home one year ago and the mortgage payment is $5,100 monthly. The Kumars are parents of a pre-school child and Sue is a stay-at-home mom. Dan is the sole breadwinner and earns $240,000 annually. Sue is interested in returning to the labor force but concerned about whether child care costs and taxes would wipe out whatever she would earn. Unfortunately, the Kumars are starting to face some financial difficulty. Monthly payments on their debts are consuming a greater percentage of their income and, along with their mortgage, don't leave them much income for other expenses. The couple has absolutely no money in savings for emergencies. Another indicator of financial distress is the couple's negative net worth. In other words, they owe more than they own. The couple's assets total $1,051,600 and include $6,000 in a checking account, $15,600 in Dan's pension plan, a $900,000 condo apartment, and two cars and personal property worth $130,000. On the debt side, the couple owes $840,000 on their mortgage, two personal loans totaling $60,000 with payments of $1,381 monthly, $32,000 on a credit card, $71,930 on a time share with monthly payments of $1,900, and $78,000 to Sue's parents. Their net worth (assets minus debts) is, thus, minus $30,330. The personal loan and time share loan has 54 and 51 months respectively before full repayment. The credit card is maxed out and Dan usually pays $4,000 monthly which covers the 2% monthly interest charge and the balance is spent on expenses. Dan says he would like to retire when he is 55 and "live comfortably and independently." Neither Sue nor Dan has individual retirement accounts or deferred annuities, however, and Dan has stopped contributing to his employer's matching pension plan. The couple has no wills. "I don't have money to pay a lawyer to do the will and am not sure how to do it without a lawyer," Dan explained. The couple has $1.8 million of term life insurance on Dan and family health insurance with a $1 Million per person major medical limit paid for by Dan's employer. They carry third party insurance on their cars and $500,000 of condo insurance. There is no disability insurance to cover the loss of Dan's income should he be unable to work due to accident or illness. Required: 1. Using current Trinidad & Tobago income tax, NIS and health surcharge rates, calculate Dan's monthly take-home earnings. (3 marks) 2. Using the take-home earnings figure calculated in question 1 and the information in the case; prepare a monthly income statement/budget for Dan and Sue. Make reasonable assumptions about living expenses such as car maintenance, groceries, etc. (5 marks) 3. Can Dan's retirement plan be achieved? Use appropriate time value of money calculations to justify your answer. (3 marks) 4. Prepare a financial plan for Dan and Sue to improve their financial position including a suggested retirement strategy and a revised monthly budget. Offer any additional personal financial advice you deem appropriate for (10 marks)
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Answer rating: 100% (QA)
1 To calculate Dans monthly takehome earnings we would need specific income tax National Insurance S... View the full answer
Related Book For
Income Tax Fundamentals 2013
ISBN: 9781285586618
31st Edition
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill
Posted Date:
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