Must post first Life Situation Financial Data The Brocks now

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Life Situation

Financial Data

The Brocks now have two preschool-age children. Their household income has declined with Pam providing full-time care for the children. To compensate for their lower monthly income, Pam and Josh have cut back to spend money on basics only. As a result of this action, the Brocks have managed to pay down their liabilities over the past four years.

The Brocks are considering purchasing a second automobile. Currently, Pam must drive Josh to the train station (creating many inconveniences for her and the children) if she wants to use the car for various business and education activities.

Housing needs are changing for the Brocks as their family increases in size. At present, they pay $750 in rent for a two-bedroom apartment. To purchase a home for a comparable monthly payment, the Brocks would have to relocate farther from Josh\'s place of employment. With a second car and public transportation as available options, Pam and Josh are starting to consider this home purchase.

Questions

Q4. What actions might the Brocks take to enhance their home-buying and financing activities

Solution

The Brocks have a monthly income of $3600 and monthly expenses of $ 3125. Since they have cut back on expenses other than basic expenses, it may be presumed that a further cut back in expenses is not possible. The monthly surplus income is $ 3600 - $ 3125 = $ 475. The present liabilities are $ 1520 which is about 3.2 months\' surplus. The Brocks also have assets worth $ 33850. In order to decide the future course of action, it is necessary to analyse the nature of their assets.

If the Brocks have to buy a home as per their incresing family size related requirements, they can do so with monthly payments within their existing monthly rent. However, they have to move farther from Josh\'s place of employment, so a second car is needed.There are 2 alternatives.

ONE- If the Brocks can wait for about 4 months to purchase a second car, their liabilities would be liquidated in this time. If we presume that these liabilities have a financial cost, then the liqidation of liabilities would enhance the monthly surplus and hence increase their capacity to buy another car.

TWO- If the Brocks can liquidate their assets worth $ 1520 to liqidate their liabilities without advesely impacting their monthly surplus ( we are assuming that both their assets and liabilities have financial implications) , this option may also be evaluated. This will enable them to buy a second car immediately. They can then consider buying a home also.