PFIN 2nd Edition by Lawrence Gitman ,Michael Joehnk,Randall Billingsley

Exercise 3

Use Worksheet 6.1. Jenny Marks is evaluating her debt safety ratio. Her monthly take-home pay is $3,320. Each month, she pays $380 for an auto loan, $120 on a personal line of credit, $60 on a department store charge card, and $85 on her bank credit card. Complete Worksheet 6.1 by listing Jenny's outstanding debts, and then calculate her debt safety ratio. Given her current take-home pay, what is the maximum amount of monthly debt payments that Jenny can have if she wants her debt safety ratio to be 12.5%? Given her current monthly debt payment load, what would Jenny's take-home pay have to be if she wanted a 12.5% debt safety ratio?