Reference no: EM132523322

1. What is the family's net worth? Please attach support for this with either an Excel or MS Word document to the Personal Finance Case assignment tab in myCourses. Your Excel or MS Word file should clearly reveal the Balance Sheet for the Douglas Family. Please produce it in good form - emulating what you see for examples in the book. The balance sheet "as of date" should be May 1, 2020.

2. What is the current ratio? (Use the formula from the book)

3. What is the debt ratio?

4. Any comments about the family's investment portfolio? Please keep in mind that their investment portfolio currently consists of common stocks. Their home is not considered part of their investment portfolio. Strengths or weaknesses?

5. If the family's monthly living expenses are about $6,000, what is their liquidity ratio?

6. Jeff Douglas believes strongly that they should help fully fund the equivalent of a state university education (4 years) for Paul and Marcy. Both sets of grandparents have volunteered to make a lump sum donation (50/50 spilt) to the mutual funds today. In other words, these generous grandparents have stated that they are willing to pool their funds and make a substantial deposit to support an education fund.

If today's cost of that type of college education is $25,000 per year and that it will inflate by 4% per year, how much must the grandparents donate to the mutual funds to fully fund these investments (to meet Jeff's goal)? (Assume that Paul and Marcy will start college in 12 and 11 years respectively. You will need to determine the present value of the future college costs. I have put a worksheet at the end of this document that you might find helpful. If you are an Excel user, you can set this up within an Excel worksheet.
Here are some steps to follow:

A. First by growing the cost of education by 4% per year (12 years into the future for Paul and 11 years for Marcy) and then calculating the present value of those future cash flows. Keep in mind that Paul will be going to school for 4 years and so too will Marcy. So, you will need to figure the future value of the cost of education for the first year, second year, third year, and fourth year - each year 4% more costly than the year before!

B. Calculate the present value of the future costs of education using the investment yield prediction (8% - see below and notice in the data above that the investment fund has averaged 8% per year).

C. Once you have the present value of the future costs - you can subtract the current balance in these accounts to derive the "donation" that the grandparents will need to make.) Assume that the investment will grow at 8% per year as a result of investment yields. How much (in total) must the grandparents invest today to establish the education fund for Paul and Marcy?

NOTE: There is more on how to approach solving requirement 6 at the end of this document.