Homework Problems

Name_________________________

HOMEWORK PROBLEMS Chapter 2, Planning with Personal Financial Statements

1. List ten cash outflows that would be found in most personal cash flow statements.

2. List and discuss the factors that affect cash inflows.

3. From the following data prepare an expected monthly cash flow statement (budget). Based on the budget, what suggestion might you make? Salary Interest Rent Groceries Gas, electric & water Cable TV and Internet Renters’ insurance Car insurance Clothing Car expenses Cell phone Car payment Recreation

$3125/month* $4/month** $750/month $75/week $85/month $40/month $600/year $700/six months $100/month $90/month $35/month $250/month $100/month

* taxes and other deductions amount to 38% of gross ** emergency savings account *** including gas

Homework Problems to accompany Personal Finance, Second Edition by Jeff Madura

4. Classify each of the following as either a liquid asset (LA), household asset (HA) or investment (I). a. Bedroom suit _____ b. Checking account _____ c. Car _____ d. 401(k) _____ e. Emergency savings account _____ f. Entertainment center _____ g. Lot on which you may build a home _____ h. Computer _____ i. Boat _____ j. Mutual funds _____

5. Classify each of the following as to whether it is a current liability (CL) or long-term liability (L-T). a. School loan _____ b. Credit card balance _____ c. Utility bill _____ d. Car loan _____ e. Home loan _____ f. Phone bill _____ g. Home equity loan _____ h. Cable TV bill _____ i. Boat loan _____ j. American Express Card bill _____

6. From the following items, prepare a personal balance sheet and compute the net worth: Checking account Cash in wallet Emergency fund in a Money Market Mutual Fund Furniture Computer Car Car loan (5 years) School loan 401(k) plan Credit card balance

$1,500 $200 $3,000 $2,500 $1,800 $6,000 $3,500 $4,000 $3,100 $1,100


7. A personal balance sheet shows the following information: Liquid assets Household assets Investment assets Current liabilities Long-term liabilities

$5,300 $87,000 $52,000 $6,100 $51,000

a. What is the net worth? b. Compute the liquidity ratio. c. Compute the debt-to-asset ratio. d. Comment on the ratios.

8. Discuss at least three specific methods by which you can increase your wealth.

9. The text identifies three possible cash inflows: salary, interest and dividends. List at least three other possible cash inflows that a person could have.

10. There are three factors given in the text that affect cash inflows and three that affect outflows. One is common to both inflows and outflows. Which one is it and how does it affect both inflows and outflows?
