Mylab Financ
THE SAMPSONS-A Continuing Case: Chapter 2
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.
d achieving their financial goals is to
The Sampsons realize t~at the first step t_owar
and outflows. Dave and Sharon' create
a budget capturing their monthly cash inflows
h
s con,.
bined disposable (after-tax) income is now about $ 5 ,ooo per mont ·
Reviewing their bank statement from last mon
monthly household payments~
th Dave and Sharon identify the foll
.
,
owing
•
$1,100 for home expenses (including the mortgage payment, home insurance,
•
$100 for Internet
•
$200 for electricity and water
•
$200 for cellular expenses
•
$800 for groceries
•
$200 for a health care expenses
and property taxes)
The Sampsons also review several credit card bills to estimate their other typical monthly
expenses:
•
About $300 for clothing
•
About $400 for car expenses (insurance, maintenance, and gas)
•
About $200 for school expenses
•
About $900 for recreation and programs for the children
To determine their net worth, the Sampsons also assess their assets and liabilities, which
include the following:
•
$2,000 in their checking account
•
Home valued at $150,000
•
Furniture worth about $3,000
•
Sharon's car, which needs to be replaced soon, is worth about $1,000; Dave's car
is worth approximately $8,000
•
They owe $130,000 on their home mortgage
NAME
DATE
1. Using the information in the case, prepare a personal cash flow statement for the Sampsons.
Personal Cash Flow Statement
Cash Inflows
This Month
Disposable income
$5,000
Total Cash Inflows
$5,000
Cash Outflows
Mortgage, home insurance and property taxes
$1,100
Internet
$100
Electricity and water
$200
Cellular
$200
Groceries
$800
Health care insurance and expenses
$200
Clothing
$300
Car expenses (insurance, maintenance, and gas)
$400
School expenses
$200
Recreation
$900
Credit card minimum payments
$0
Other
$0
Total Cash Outflows
$4,400
Net Cash Flows
+$600
2. The Sampsons hope to have net cash flows of $1,000 per month so that they can add $1,000 per
month to their savings. Based on their personal cash flow statement for last month, were the
Sampsons able to meet their goal of saving $1,000? If not, how do you recommend that they
revise their personal cash flow statement to achieve their savings goals? Is there any particular
cash outflow which seems unusually large that could possibly be reduced?
They were not able to meet their goal of saving $1,000. I would recommend that they spend
less money on things such as clothes and recreation.
3. Prepare a personal balance sheet for the Sampsons.
Personal Balance Sheet
Liquid Assets
Cash
Checking account
Savings account
Total liquid assets
$5,000
$2,000
$12,000
$19,000
DATE
NAME
Household Assets
Home
$150,000
Car
$9,000
Furniture
$3,000
Total household assets
$162,000
Investment Assets
Stocks
$0
Bonds
$0
Mutual funds
$0
Total investment assets
Total Assets
Liabilities and Net Worth
Current Liabilities
Loans
Credit card balance
Total current liabilities
$0
$162,000
$32,000
$0
$0
$0
$0
Long-Tenn Liabilities
Mortgage
Car loan
Total long-term liabilities
Total Liabilities
NetWorth
$130,000
$0
$130,000
$130,000
+$32,000
4. What is the Sampsons' net worth? Based on the personal cash flow statement that you prepared
in question 1, do you expect that their net worth will increase or decrease in the future? Why?
The Sampsons’ net worth is $32,000. Their net worth is expected to decrease in the future because they don’t have any
investment assets, but also because their cash inflows are about the same as their outputs. They also have a car that needs
to be replaced soon which they may need to make car loan payments for as they don’t make enough income to squeeze a
car into their budget.