Chris Johnson Case

Chris and Grace Johnson Financial Case 1. Strengths: ■ They a positive cash flow; the total income is 122,782 per year, and the total outcome is 116,024. The net cash flow per year is 6,758. ■ Both Chris and Grace are economically productive. Both are professionals and invest in the education of their sons. That will guarantee a good economic performance in the present and future. ■ They are the owners of the business. Even though they are employees, the business gives them a positive increase of cash flow. Weakness: ■ They don't have enough assets that generates a positive cash flow except the restaurant. ■ The 401k and deposit certificate are not good investments because of the low return and the high taxes that apply to those investments …show more content…

Liquid Assets / Monthly Expenses = 19,200 / (116,024/12) = 1.98 Liquid Assets / Current Debt Payments = 19,200 / 5,200 = 3.69 Net Worth / Total Assets = 6,758 / 343,923 = 0.02 Total Debt / Total Assets = 118,036 / 343,923 = 0.34 Total Debt / Annual Total Income = 118,036 / 122,782 = 0.96 Housing and Monthly Debt Payments / Monthly Gross Income = 10,267 / (122,782/12) = 1.00 Housing costs / Monthly Gross income = 1,800 / (122,782/12) = 0.18 Monthly Savings / Monthly Gross Income = (5860/12) / (122,782/12) = 0.05 4. The liquidity ratios that relate current assets and liabilities and long-term assets and liabilities are important to evaluate the capacity of the family to avoid problems with the banks and creditors. The other important ratio is the relation between income and outcome. 5. The original mortgage of the house was signed by 103,190 considering thirty years of mortgage and 9.25% and applying the Net Present Value principle the year payment is: 10267. 6. They made the first payment. 7. Not yet, they are starting to pay the current …show more content…

With the current mortgage, they will pay at the end of the contract 308,026 and with a 15-year mortgage, they will pay 194,867.44. It is bad business for them when they plan to save 5,860 a year for retirement. The year payment for the 15-year mortgage is 12,991.16. 9. The other method to renegotiate the mortgage is with the interest rate. The interest rate could go down, at that moment, the family could go to the bank to renegotiate the mortgage. 10 Is the health care insurance coverage adequate? Yes, the payment is accessible for the family, and the deductible amount (2000) are under the annual savings of the family. The coverage of 100% of medical expenses over 2000 is a benefit for the family. 11. The interests of the residence payment are a tax shield for the income of the family. The value for the previous year is 9545.08. 12. Yes, she is a dependent for the Johnson Family, because her economic income depends on 100% of the Johnson family. 13. Yes, she is a dependent for the Johnson Family, because her economic income depends on 100% of the Johnson family. 14. They gave to Mrs. Johnson 6000 a year and to Mrs. Zhang 3600. Under the topic 602 of IRS, the limit for tax purposes is 6000 for two or more dependents (IRS).