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ASSIGNMENT #2: Money Management: Assessing Your Alternatives
Answer each of the following questions completely and SHOW YOUR WORK.
1. Reducing Expenses to Buy a New Car
Amanda recently graduated from college and accepted a position in Topeka, Kansas as an administrative assistant in a local business. She has no debts and her budget is shown in the table below. She now faces the question of whether to trade in her old car on a new one that will cost her a monthly payment of $330. Taking the role of a good friend, of Amanda, decide in what areas and how much in each area might she cur back on her expenses so that she can afford that vehicle. Answer these questions briefly and with detail.
a)What areas might be realistically cut back?
b)How much in each area might be cut back in order to give Amanda the $330 she needs for her car payment?
c)Are there any alternatives that you might offer Amanda?
Amanda’s monthly budget
Rent $550
Savings 200
Utilities (heat, telephone, etc) 130
nsurance 70
Transportation expenses 210
Charitable contributions 50
Entertainment 100
Clothing/ Personal Care 75
Vacations 25
Medical and Dental Expenses 20
Cable TV and subscriptions 25
Vices 40
Gifts and holidays 25
Health Club 30
Miscellaneous 70
2.Comparing Renting and Buying
Based on the following data, would you recommend buying or renting?
RENTAL COSTS
Annual Rent $7,380
Insurance 145
Security Deposit 650
BUYING COSTS
Annual Mortgage Payments $9,800
($9,575 is interest)
Property taxes 1,780
Insurance/Maintenance 1,050
Down payment/closing costs 4,500
Growth in equity 225
Estimated annual appreciation 1,700
Assume an after-tax savings interest rate of 6 percent and a tax rate of 28 percent. Use calculations to answer this question and be specific.
Answer each of the following questions completely and SHOW YOUR WORK.
1. Reducing Expenses to Buy a New Car
Amanda recently graduated from college and accepted a position in Topeka, Kansas as an administrative assistant in a local business. She has no debts and her budget is shown in the table below. She now faces the question of whether to trade in her old car on a new one that will cost her a monthly payment of $330. Taking the role of a good friend, of Amanda, decide in what areas and how much in each area might she cur back on her expenses so that she can afford that vehicle. Answer these questions briefly and with detail.
a)What areas might be realistically cut back?
b)How much in each area might be cut back in order to give Amanda the $330 she needs for her car payment?
c)Are there any alternatives that you might offer Amanda?
Amanda’s monthly budget
Rent $550
Savings 200
Utilities (heat, telephone, etc) 130
nsurance 70
Transportation expenses 210
Charitable contributions 50
Entertainment 100
Clothing/ Personal Care 75
Vacations 25
Medical and Dental Expenses 20
Cable TV and subscriptions 25
Vices 40
Gifts and holidays 25
Health Club 30
Miscellaneous 70
2.Comparing Renting and Buying
Based on the following data, would you recommend buying or renting?
RENTAL COSTS
Annual Rent $7,380
Insurance 145
Security Deposit 650
BUYING COSTS
Annual Mortgage Payments $9,800
($9,575 is interest)
Property taxes 1,780
Insurance/Maintenance 1,050
Down payment/closing costs 4,500
Growth in equity 225
Estimated annual appreciation 1,700
Assume an after-tax savings interest rate of 6 percent and a tax rate of 28 percent. Use calculations to answer this question and be specific.
