Why do people construct a budget?
> Is an increase in debt a plus or minus from a cash flow standpoint? Explain.
> Why segregate a balance sheet by type of asset and type of liability?
> Elaborate on the two approaches to making projections for a cash flow statement.
> In working out the capital needs analysis, it became apparent that there was need for an additional $17,000 of savings annually over what was previously calculated. The first reason had to do with a recent job development that resulted in a projected mod
> What are reasons that a person may have a poor net cash flow yet be considered to be in good financial health?
> In your opinion, which presents results more fairly, finance or accounting? Explain.
> What makes the household an enterprise?
> Define the term opportunity cost of time.
> What does life cycle theory say a household should have in savings at the end of its life? Is that practical? Explain your answer.
> List some of the advantages and disadvantages of various organizational structures for the individual.
> What is TPM and why is it valuable in the framework of household planning?
> When would it be beneficial for the household enterprise to outsource some activities, for example, cooking?
> Are any of the outlays in preferable to the others? Support your answer.
> What is the importance of the theory of financial planning?
> Richard came in with his cash flow statistics and very helpful notes on projections. His list included He said to assume that his salary will rise 6 percent a year, and his investment income is 11 percent a year (the investment loss came a year ago). H
> Outline the similarities and differences between a household and a business.
> Why is it important to differentiate among the various types of household expenditures?
> Describe household operations according to household finance.
> What is rate of return and why do we use inflation-adjusted return?
> Explain regular annuity versus annuity due and give examples.
> How does household finance tie into financial planning?
> Do you believe Maria needed a financial planner? Why or why not?
> Do you think the amount of information available on the Internet regarding advice for financial planning is beneficial or detrimental to the financial planning career? Support your answer with information from the chapter.
> What is a contributing factor for the increasing demand for financial planners?
> Would a lump sum today or the comparable amount in periodic payments deposited over time provide a higher FV? Why?
> Monica asked that we meet to see if I could help to reduce the differences between them. When the time came, she started the conversation by saying that Richard wasn’t saving any money at all. They hadn’t started implementing. She said he spent a good de
> Why is knowledge of the time value of money useful?
> What is compounding, and why is it important?
> Sam went to a financial planner who proceeded to give him written recommendations in all areas of financial planning. Is that a financial plan? If not, what might be missing?
> List and discuss the parts of a financial plan.
> Explain the difference between sensitivity and scenario analyses.
> List five keys to a successful financial plan.
> Why is a behavioral review so relevant at this point in the planning process?
> Outline the steps in the financial planning process and some questions under each that are significant in completing a financial plan.
> Using Figure 19.1 list the source and uses of cash for the household. Figure 19.1: Revenues Living costs (including taxes) Special circumstances planning Educational Debt planning PFP Integration Capital expenditures (household investments) Estate
> Detail five of the concepts that underlie PFP theory.
> Richard and Monica maintained their contrasting views when it came to estate planning. Even though their assets were well under the threshold for exposure to federal estate tax, he wanted to set up a bypass trust. Monica wanted the personal assets, now m
> Chris’s current liabilities exceeded his current assets. He said not to worry; he could use his credit card if he needed extra funds. What do you think of this practice?
> List five reasons for saving.
> Name one behavioral characteristic in each part of active financial planning other than investments. Indicate how they can affect the financial planning process.
> Name three behavioral weaknesses that might apply to investment analysis and give examples of them.
> Provide five methods for helping people to save.
> What is cash flow planning?
> Discuss behavioral life cycle theory. Do you believe it is realistic?
> Indicate what a heuristic is and give four examples of it.
> Should goal planning be part of the financial planning process or should there just be a numbers-only approach?
> Indicate the mechanisms for enhancing savings practices. Are they realistic? Discuss.
> Richard and Monica estimated they would have adjusted gross income of $108,000 in the current year and would have exemptions of $7,900 and deductions of $25,000. Their average combined federal and state tax bracket was 33 percent. Required: 1. Compute t
> What is a liquidity substitute? When should it be used?
> What is happiness research? Does this research indicate that money brings happiness?
> Discuss the planning steps in a simple capital needs analysis.
> Should a comedian and a government employee receive the same financial asset allocation if they have similar tolerances for risk? Why?
> Why is overhead cost considered a liability under TPM?
> What is total portfolio management?
> Identify the advantages of Monte Carlo simulation.
> Contrast simple and risk-adjusted capital needs analysis.
> Why can it be beneficial to raise or lower the withdrawal rate in response to market fluctuations?
> Brad and Barbara also attended the meeting. They said they were too young to start saving for retirement. Retirement seemed “hundreds of years” away and they wanted to have fun today. They would have plenty of time to save for retirement when they were i
> What are the advantages of the withdrawal rate method?
> What are the weaknesses of the withdrawal rate method?
> List the steps in the retirement needs analysis.
> When should the investment rate, the blended rate, and the inflation rate be used, respectively?
> How do an open-end and a closed-end mutual fund differ?
> Distinguish between a dividend discount model and a price-earnings model.
> Compare preferred shares with common shares and with debt.
> Distinguish between a bond’s coupon yield and a current yield.
> List and give examples of the three types of bond risks.
> List and explain four key steps in selecting a mutual fund.
> At the retirement planning meeting held recently, Richard and Monica were in agreement that they were well short of the money they needed for retirement at Richard’s age 65. Monica said she was thinking of handling investments herself. Richard said he wa
> What are the Sharpe ratio and the alpha coefficient used for? Contrast them.
> What is an exchange-traded fund?
> Explain the separate characteristics of three prominent types of load funds.
> List the maturity dates for classification purposes for bonds.
> Sally gave $200,000 to her daughter and said, “It’s yours as long as you agree to support me when I am older, if I should run out of my funds.” Is that a gift? Explain.
> Why are basis and a step-up in basis important?
> Shelly had just inherited money from her parents that she was considering placing in a joint account with her husband. She also was contemplating a legal separation from her husband. What advice would you give her? Why?
> Identify the alternative ways of titling and transferring assets and indicate how they differ.
> Detail the advantages and disadvantages of probate.
> Name the three major ways of receiving non–work-related funds from acquaintances and indicate how they should be valued.
> When I examined Richard and Monica’s insurance policies, I found the following: a. Medical coverage was adequate. b. Auto insurance was at the minimum level for the state of $50,000 to $100,000 per accident. c. Homeowners insurance was at a level of 50 p
> What are the strengths and weaknesses of a durable power of attorney?
> Morris didn’t understand why he should set up a bypass trust. He said that without a trust, upon his death the $6,000,000 in assets in his name could go to his wife free of estate tax. Why should he put restrictions on his wife by transferring the money
> Shane didn’t want to establish a bypass trust with her son as remainder beneficiary even though it would reduce the tax on her estate. She said her husband might need some of the money. Is that wise? Explain.
> Detail the advantages and disadvantages of setting up a trust.
> Samantha was affluent and gave $6,000 to each of 1,000 needy individuals. Someone told her that under the uniform estate and gift tax, she would have to pay a tax. Were they correct?
> Identify five reasons for having a will.
> What is clustering of expenses? Give an example of it.
> What is the difference between shifting income and transforming income?
> Which is the most appropriate tax bracket to use in making investment decisions: marginal or average tax bracket? Why?
> Why perform tax planning?
> In our meeting, it became apparent that Richard’s investment loss was not a solitary act. Richard was very indulgent and paid little attention to his health. He went out on shopping sprees that he and Monica couldn’t afford. He was overweight. He used al
> Richard called and said that he had compiled a list of assets and would send it. It came a few days later. His assets included a home worth $300,000, approximately $350,000 in securities, two cars worth $40,000 with loans of $15,000 against them, and oth
> Conrad Smith, a business executive, is an avid collector of vintage comic books. In February, he sold a 1938 Superman comic for $3,700 that he had purchased six years ago for $625. In December, Conrad sold a 1950 Donald Duck comic for $575 that he had pu
> Mr. and Mrs. Isaacs, ages 68 and 66, always claim the standard deduction on their joint return. They own a local restaurant, the Shoreline Grill, as a sole proprietorship. They are both graduates of State University and make regular donations to their al
> Mr. JR’s tax situation for the year is very complicated. He engaged in several high-dollar investment transactions involving unresolved tax issues. He has instructed his accountant to take the most aggressive position possible with respect to these trans
> Mr. Massey, who is in the 32 percent marginal tax bracket and itemizes deductions, recently inherited $30,000. He is considering three alternative uses for this windfall: He could buy shares in a mutual bond fund paying 6 percent interest a year. He coul
> The IRS recently assessed a $290,800 income tax deficiency on CMP Corporation. The deficiency is attributable to a complicated accounting issue involving CMP’s investment in a controlled foreign corporation. CMP plans to contest the deficiency in court.
> Ms. French is a successful attorney in the 37 percent marginal tax bracket. During the past several years, she provided legal services to her great-uncle, who is 78 years old and in failing health. Although the uncle offered to pay for her work, she refu
> During an IRS audit, Ms. H provided the revenue agent with a meticulous set of records substantiating every number on the return. The agent actually complimented her on the quality of her preparation. Nevertheless, Ms. H did make an error in her favor. W
> Percy Wilson is a calendar year taxpayer. What is the unextended filing date of Percy Wilson’s 2018 federal income tax return if: a. Percy Wilson Inc. is a corporation? b. Mr. Percy Wilson is an individual? Answer a. The unextended due date of a 2018 c
