PFIN 5th Edition by Randall Billingsley,Lawrence Gitman,Michael Joehnk

Exercise 3

Evaluating debt safety ratio. Use Worksheet 6.1. Ashley Prather 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 Ashley'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 Ashley can have if she wants her debt safety ratio to be 12.5 percent? Given her current monthly debt payment load, what would Ashely's take-home pay have to be if she wanted a 12.5 percent debt safety ratio?