PROBLEMS (p. 24-25)
(Note: Some of these problems require the use of the Time Value of Money Tables in the Chapter 1 Appendix, pp. 40-43).
1. Using the rule of 72, approximate the following amounts.
a. If the value of land in an area is increasing 6 percent a year, how long will it take for property values to double?
b. If you earn 10 percent on your investments, how long will it take for your money to double?
c. At an annual interest rate of 5 percent, how long will it take for your savings to double?
2. In 2013, selected automobiles had an average cost of $16,000. The average cost of those same automobiles is now $20,000. What was the rate of increase for these automobiles between the two time periods?
3. A family spends $46,000 a year for living expenses. If prices increase by 3 percent a year for the next three years, what amount will the family need for their living expenses after three years?
4. Ben Collins plans to buy a house for $220,000. If that real estate is expected to increase in value by 2 percent each year, what will its approximate value be seven years from now?
5. What would be the yearly earnings for a person with $8,000 in savings at an annual interest rate of 1.5 percent?
6. Using time value of money tables (Exhibit 1-3 or Chapter Appendix tables-Pages 40-43), calculate the following:
a. The future value of $550 six years from now at 7 percent.
b. The future value of $700 saved each year for 10 years at 8 percent.
c. The amount that a person would have to deposit today (present value) at a 5 percent interest rate in order to have $1,000 five years from now.
d. The amount that a person would have to deposit today in order to be able to take out $500 a year for 10 years from an account earning 8 percent.
7. If you desire to have $10,000 for a down payment for a house in five years, what amount would you need to deposit today? Assume that your money will earn 4 percent.
8. Pete Morton is planning to go to graduate school in a program of study that will take three years. Pete wants to have $8,000 available each year for various school and living expenses. If he earns 3 percent on his money, how much must be deposit at the start of his studies to be able to withdraw $8,000 a year for three years?
9. Carla Lopez deposits $3,000 a year into her retirement account. If these funds have an average earning of 7 percent over the 40 years until her retirement, what will be the value of her retirement account?
10. If a person spends $10 a week on coffee (assume $500 a year), what would be the future value of that amount over ten years if the funds were deposited in an account earning 3 percent?
PROBLEMS (p. 65-66)
1. Based on the following data, determine the amount of total assets, total liabilities, and net worth.
Liquid assets, $3,870 Investment assets, $8,340
Current liabilities, $2,670 Household assets, $87,890
Long-term liabilities, $76,230
a. Total assets
b. Total liabilities
c. Net worth
2. Using the following balance sheet items and amounts, calculate the total liquid assets and total current liabilities: Money market account $2,600 Medical bills $262
Mortgage $158,000 Checking account $780
Retirement account $87,400 Credit card balance $489
a. Total liquid assets
b. Total current liabilities
3. Use the following items to determine the total assets, total liabilities, net worth, total cash inflows, and total cash outflows.
Rent for the month, $650 Monthly take-home salary, $2,185
Spending for food, $345 Cash in checking account, $450
Savings account balance, $1,890 Balance of educational loan, $2,160
Current value of automobile, $8,800 Telephone bill paid for month, $65
Credit card balance, $235 Loan payment, $80
Auto insurance, $230 Household possessions, $3,400
Video equipment, $2,350 Payment for electricity, $90
Lunches/parking at work, $180 Donations, $160
Personal computer, $1,200 Value of stock investment, $860
Clothing purchase, $110 Restaurant spending, $130
a. Total assets =
b. Total liabilities =
c. Net worth =
a. Total cash inflows =
e. Total cash outflows =
4. For each of the following situations, compute the missing amount.
a. Assets $65,000; liabilities $18,000; net worth=??
b. Assets $86,500; liabilities=?? net worth $18,700.
c. Assets $34,280; liabilities $12,965; net worth=??
d. Assets=?? liabilities $38,345; net worth $52,654
5. Based on this financial data, calculate the ratios requested: (Page 51) Liabilities $7,800 Net worth $58,000
Liquid assets $4,600 Current liabilities $1,300
Monthly credit payments $640 Take-home pay $2,575
Monthly savings $130 Gross income $2,850
a. Debt ratio
b. Current ratio
c. Debt-payments ratio
d. Savings ratio
10. Fran Powers created the following budget and reported the actual spending listed. Calculate the variance for each of these categories, and indicate whether it was a deficit or a surplus.
Item Budgeted Actual Variance Deficit/Surplus
Food $360 $298
Transportation 320 334
Housing 950 982
Clothing 110 134
Personal 275 231
Note: A deficit in one category means that another category will have to make up the difference.
2. If Samantha Jones had the following itemized deductions, should she use Schedule A or the standard deduction? The standard deduction for her tax situation is $6,350.
Donations to church and other charities, $3,050
Medical and dental expenses exceeding 10 percent of adjusted gross income, $450
State income tax, $920
Job-related expenses exceeding 2 percent of adjusted gross income, $1,450
3. What would be the average tax rate for a person who paid taxes of $6,435 on a taxable income of $40,780?
5. If $4,323 was withheld during the year and taxes owed were $4,122, would the person owe an additional amount or receive a refund? What is the amount?
9. Using the tax table in Exhibit 3–5, determine the amount of taxes for the following situations:
a. A head of household with taxable income of $62,525.
b. A single person with taxable income of $62,001.
c. A married person filing a separate return with taxable income of $62,365.
10. Wendy Brooks prepares her own income tax return each year. A tax preparer would charge her $75 for this service. Over a period of 10 years, how much does Wendy gain from preparing her own tax return? Assume she can earn 3 percent on her savings. (LO 3.3)
11. Julia Sims has $30,000 of adjusted gross income and $5,000 of medical expenses. She will be itemizing her tax deductions this year. The most recent tax year has a medical expenses floor of 10%. How much of a tax deduction will Julia be able to deduct?
***Tax Law Change: Medical and Dental expenses that can be itemized have changed over the years from 7.5% to 10%, back to 7.5% You will be told in all problems whether to use 7.5% or 10% for your calculations.
14. On December 30, you decide to make a $3,000 charitable donation. (LO 3.4)
a. If you are in the 28 percent tax bracket, how much will you save in taxes for the current year?
b. If you deposit that tax savings in a savings account for the next five years at 8 percent, what will be the future value of that account?