Question: They are considering trading their car in
They are considering trading their car in for a newer used vehicle so that Harry can have dependable transportation for commuting to work. The couple still owes $5,130 to the credit union for their current car, or $285 per month for the remaining 18 months of the 48-month loan. The trade-in value of this car plus $1,000 that Harry earned from a freelance interior design job should allow the couple to pay off the auto loan and leave $1,250 for a down payment on the newer car. The Johnsons have agreed on a sales price for the newer car of $21,000.
Required:
(a) Make recommendations to Harry and Belinda regarding where to seek financing and what APR to expect.
(b) Using the Garman/Forgue companion website or the information in Table 7-2, calculate the monthly payment for a loan period of three, four, five, and six years at 6 percent APR. Describe the relationship between the loan period and the payment amount.
(c) Harry and Belinda have a cash-flow deficit projected for several months this year (see Table 3-6 and Table 3-7. Suggest how, when, and where they might finance the shortages by borrowing.
Table 3-6:
Table 3-7:
Transcribed Image Text:
Table 3-6 2018 Unfinished Annual Budget Estimates for Harry and Belinda Johnson Yearly Monthly Jan. Feb. Mar. Apr. Мay June July Aug. Sept. Oc. Nov. Dec. Total Averages INCOME 4,080 4,080 4,080 Harry's salary Belinda's salary 4,080 4,080 4,080 4,080 4,080 4,080 4,080 4,080 4,080 48,960 4,080.00 6,400 6,400 6,400 6,400 6,400 6,400 6,400 6,400 6,400 6,400 6,400 6,400 76,800 6,400.00 Interest 30 30 30 30 30 30 30 30 30 30 30 30 360 30.00 Income from trust 3,000 3,000 250.00 TOTAL INCOME 10,510 10,510 10,510 10,510 10,510 10,510 10,510 13,510 10,51o 10,510 10,510 10,510 129,120 10,760.00 ЕXPENSES Fixed Expenses Rent 1,600 1,600 1,600 1,600 1,600 1,600 1,700 1,700 1,700 1,700 1,700 1,700 19,800 1,650.00 Health insurance 300 300 300 300 300 300 350 350 350 350 350 350 3,900 325.00 Life insurance 20 20 20 20 20 20 20 20 20 20 20 20 240 20.00 Home purchase fund 500 500 500 500 500 2,500 208.33 Renter's insurance 220 220 18.33 Automobile insurance 600 600 1,200 100.00 Auto loan payments Student loan payments 490 490 490 490 490 490 490 490 490 490 490 490 5,880 490.00 300 300 300 300 300 300 300 300 300 300 300 300 3,600 300.00 Savingslemergencies Harry's retirement plan Belinda's retirement plan 100 100 100 100 100 100 100 100 100 100 100 100 1,200 100.00 195 195 195 195 195 195 195 195 195 195 195 195 2,340 195.00 400 400 400 400 400 400 400 400 400 400 400 400 4,800 400.00 160.00 1,700.00 500.00 Cable TV and Internet 160 160 160 160 160 160 160 160 160 160 160 160 1,920 20,400 6,000 Federal income taxes 1,700 1,700 1,700 1,700 500 1,700 S00 1,700 1,700 1,700 1,700 500 1,700 500 1,700 500 1,700 State income taxes S00 500 500 500 500 500 S00 Social security taxes Automobile registration Total fixed expenses Variable Expenses 800 800 800 800 800 800 800 800 800 800 800 800 9,600 800.00 300 300 25.00 6,565 6,565 6,565 6,565 6,565 7,165 6,715 7,435 7,215 7,215 7,515 7,815 83,900 6,991.67 Savings money market Revolving savings fund Food (home) 400 3,000 3,400 283.33 250 250 210 250 190 240 200 190 1,780 148 33 550 550 550 550 550 550 550 550 550 550 550 550 6,600 550.00 Food (out) 300 300 300 300 300 300 300 300 300 300 300 300 3,600 300.00 Utilities 220 220 220 220 220 220 220 220 220 220 220 220 2,640 220.00 Cell phones Auto gas repairs 110 110 110 110 110 110 110 110 110 110 110 110 1,320 110.00 220 220 220 220 220 220 220 220 220 220 220 220 2,640 220.00 Doctoridentist 100 100 100 100 100 100 100 100 100 100 100 100 1,200 100.00 out-of-pocket Medicines 60 60 60 60 60 60 60 60 60 60 60 60 720 60.00 Clothing and upkeep Church and charity 170.00 96.67 170 170 170 170 170 170 170 170 170 170 170 170 2,040 100 100 100 100 100 60 100 100 100 100 100 100 1,160 1,475 1,920 Gifts 80 80 110 75 140 120 60 60 400 300 122.92 Public transportation Personal allowances 160 160 160 160 160 160 160 160 160 160 160 160 160.00 S00 500 500 500 500 500 500 S00 S00 S00 S00 S00 6,000 500.00 Entertainment 150 150 150 150 150 150 150 150 150 150 150 150 1,800 150.00 European vacation 400 400 400 400 400 400 200 200 200 200 200 200 3,600 300.00 Summer vacation 200 200 200 200 200 200 1,200 100.00 Anniversary dinner party 42 42 42 42 42 42 42 42 42 42 40 40 500 41.67 Miscellaneous 100 100 100 100 100 100 100 100 100 100 100 100 1,200 100.00 Total variable 3,712 3,712 3,702 3,707 3,712 3,342 3,742 6,042 3,242 3,222 3,380 3,280 44,795 3,732.92 expenses TOTAL EXPENSES 10,277 10,277 10,267 10,272 10,277 10,507 10,457 13,477 10,457 10,437 10,895 11,095 128,695 10,724.58 Difference (available 233 233 243 238 233 53 33 53 73 -385 -585 425 for spending. saving, investing. and donating Revolving savings 385 585 withdrawals Table 3-7 Cash-Flow Calendar for Harry and Belinda Johnson 2 3 Estimated Estimated Surplus/ Deficit (1-2) Cumulative Month Surplus/Deficit $ 233 Income Expenses $ 10,510 $ 10,277 $ 10,277 January $233 February 10,510 233 $ 466 243 $ 709 $ 947 March 10,510 10,267 April 10,510 10,272 238 May 10,510 10,277 233 $1,180 June 10,510 10,507 3 $1,183 July 10,510 10,457 53 $1,236 August 13,510 13,477 33 $1,269 September 10,510 10,457 53 $1,322 October 10,510 10,437 73 $1,395 November 10,510 10,895 -385 $1,010 December 10,510 11,095 -585 $ 425 Total $129,120 $128,695 $425
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