Finish this financial planning project.
Sample Problem for Preparing and Analyzing Financial Statements Cash Flow, Debt Management, and Housing Project John and Laura Rockefeller Spring 2020 Due Dates: • April 19 (Cash, Debt, & Housing Project)—100 points • April 26 (Education Funding Project)—100 points • May 5 (Oral Presentations – Team & Recorded)—50 points • May 3 (Final Written Plan)—100 points Submit your Word and Excel files on Brightspace by 11:59 pm on the due date. All work must be completed individually except the oral presentation and final written plan which will be done in groups of two. Your clients, Laura and John Rockefeller, are very pleased with your analysis of their financial statements and basic financial analysis; however, they were surprised to see the large unidentified cash flow (surplus) on their cash flow statement. In conversation with you, they realized that they had forgotten to talk about several typical cash outflows. Before starting on this next part of their plan, you will need to revise their 2019 cash flow to include: John Disability Income Insurance 955 Annual Laura Disability Income Insurance 547 Annual Vacations 5,500 Annual House Maintenance and Repairs 4,675 Annual Furnishings and Household Expenses 5,320 Annual Bessie's Activities 130 Monthly Personal Care 110 Monthly Miscellaneous 200 Monthly After getting a more realistic view of their 2019 cash flow, they would like you to help them address some of their financial goals. While they had hinted at some of these goals earlier, in your latest meeting they went into a lot more detail regarding their goals and priorities. The Rockefeller’s goals prioritized with the most important listed first: • Laura and John would like to maintain 3 months of total outflows (including taxes, savings outflows, and all expenses) in a joint money market account. They would like to combine the funds currently in John’s money market account and Laura’s rainy-day fund into that joint money market account, and they want you to figure how to get to their target total. But they do not want to include their checking account balance or the life insurance death benefit for this emergency fund reserve. How much do they need to save monthly to get there in 6 months? 12 months? • In the future, Laura and John would like you to complete a retirement needs analysis; however, for now they would like to increase their retirement savings. Laura wants to increase her 403(b) contribution to maximize the employer match. What is the impact on their monthly gross income? • In addition, Laura and John would like to start saving monthly for the down payment for a new truck. He would like to have $15,000 accumulated in a separate money market account within 2 years if possible. How much do they need to save each month? • They would like to pay off all of their debt with the exception of the home mortgage and the auto loan within the next 18 months. They need your help in determining how much extra they should be paying on the debts to make the happen. o You may use software or an online calculator for analyzing debt payment strategies, but you must 1) reference your source in a way that we can easily find the calculator and you must 2) include a printout of the analysis in your appendix for this project. o Start with a debt inventory and include a recommendation that includes enough information so that Laura and John will know exactly how to follow the plan to meet this goal. o Useful calculators can be found at www.powerpay.org. o If they don’t have enough discretionary cash flow each month given their updated cash flows, recommend what they may need to cut temporarily to make meet this goal. Additional Debt Information: o FICO scores; Laura’s = 772 and John’s = 758 o They bank with the BFG Federal Credit Union, where they have their checking, saving, and money market accounts. o Credit Card Details (none of these are with the BFG Credit Union). The MasterCard is used regularly and paid off monthly. The VISA and Discover are not being used, and they are trying to pay off these balances. Balance APR Payment MasterCard $ 0 11.87% Minimum is 3% VISA $ 9,513 14.25% Minimum is 3.5% Discover $ 11,198 19.10% Minimum is 3% • A housing related question…Laura and John were recently on the BFG Federal Credit Union website and noticed that they advertised home mortgage loans. They would like you to make a recommendation regarding refinancing…whether or not it will help them meet their goals. You can use www.bankrate.com or other website to find an appropriate interest rate. • For now Laura and John want to reserve the $100,125 life insurance benefit for college education funding. More on that goal later. • And finally, Laura and John have indicated their priorities for these goals are: o Build up their emergency funds. o Eliminate all debt except the mortgage and automobile payments. o Save more for retirement. o Save money on the home mortgage if possible. o Save for down payment on the truck. http://www.powerpay.org/ http://www.bankrate.com/ Before you start working on the above assignment, revise your financial statements from the Financial Statements Assignment (first project) so that you are beginning with accurate numbers. Your numbers don’t have to match ours exactly, but they should be fairly close. Our net worth and cash flow statements are posted on Brightspace. After completing the cash flow, debt management, and housing recommendations, revise your financial statements and ratios to reflect all changes that you have recommended. Date the net worth statement as of the day you present it to them (i.e. the assignment due date). Prepare the cash flow statement as a projection for the year of 2020. (You can ignore raises and inflation.) Prepare a written list of your recommendations for Laura and John Rockefeller. This should be written to them and communicate the information clearly, highlighting the aspects that you feel are most important for them to understand. Make sure your recommendations are clear, specific, and usable! Remember that this will be added to the analysis document you did in the first case assignment to build your final case document, so prepare the section with the end document in mind – it will save you work down the road. If you need any additional information, either ask in class or via e-mail. Data gathering is part of the financial planning process!