PFIN 3rd Edition by Lawrence Gitman,Michael Joehnk,Randall Billingsley

Exercise 3

Use Worksheet 7.1. Every six months, Brad Stengel takes an inventory of the consumer debts that he has outstanding. His latest tally shows that he still owes $4,000 on a home improvement loan (monthly payments of $125); he is making $85 monthly payments on a personal loan with a remaining balance of $750; he has a $2,000, secured, single-payment loan that's due late next year; he has a $70,000 home mortgage on which he's making $750 monthly payments; he still owes $8,600 on a new car loan (monthly payments of $375); and he has a $960 balance on his MasterCard (minimum payment of $40), a $70 balance on his Exxon credit card (balance due in 30 days), and a $1,200 balance on a p ersonal line of credit ($60 monthly payments). Use Worksheet 7.1 to prepare an inventory of Brad's consumer debt. Find his debt safety ratio, given that his take-home pay is $2,500 per month. Would you consider this ratio to be good or bad? Explain.
REFERENCE WORKSHEET 7.1: