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

Exercise 1

Use Worksheet 8.1. Adam Modine, 41, is a recently divorced father of two children, ages 8 and 5. He currently earns $95,000 a year as an operations manager for a utility company. The divorce settlement requires him to pay $1,500 a month in child support and $400 a month in alimony to his ex-wife. She currently earns $35,000 a year as a schoolteacher. Adam is now renting an apartment, and the divorce settlement left him with about $100,000 in savings and retirement benefits. His employer provides a $75,000 life insurance policy. Adam's ex-wife is currently the beneficiary listed on the policy. What advice would you give to Adam? What factors should he consider in deciding whether to buy additional life insurance at this point in his life? If he does need additional life insurance, what type of policy or policies should he buy? Use Worksheet 8.1 to help answer these questions for Adam.