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Financial Planning Case #1 The Johnsons Decide to Buy a Car

    Financial Planning Case #1: The Johnsons Decide to Buy a Car. Afterthree years of riding a bus to work, Belinda finds that she can nolonger do so because her employer moved to a location that is notconvenient for public transportation. Thus the Johnsons are in themarket for another car. Harry and Belinda estimate that they couldafford to spend about $10,000 on a good used car by making a downpayment of $2,000 and financing the remainder over 24 months at $355 permonth.a) Makesuggestions about how the $355 might be integrated into the Johnsons’budget (Table 3-5 on page 86) by making reductions in certain expensecategories. b) If theycannot make room in their budget for a $355 monthly car payment, wouldyou recommend they finance a vehicle for 36 or 48 months? Why or whynot? c) Which sources of used cars should they consider? Why? d) Assume thatthe Johnsons have narrowed their choices to two cars. The first car is athree-year-old Chevrolet Malibu with 4,000 miles; it is being sold for$10,000 by a private individual. The seller has kept records of allmaintenance and repairs. The second car is a three-year-old Ford Fusionwith 28,000 miles, being sold by a used-car dealership. Harry contactedthe previous owner and found that the car was given in trade on anothercar about three months ago. The previous owner cited no major mechanicalproblems but simply wanted a bigger car. The dealer is offering awritten 30-day warranty on parts only. The asking price is $10,400.Which used car would you advise the Johnsons to buy? Why? e) Would you recommend that they purchase or lease a low-priced new vehicle instead of buying a used vehicle? Why or why not? Financial Planning Case #4: Michael and Jonathan Weigh the Benefits and Costs of Buying Versus Renting. MichaelHigginbottom and Jonathan Van Ness of Logan, Utah, are trying to decidewhether to rent or purchase housing. Both men are single. Michaelfavors buying and Jonathan leans toward renting, and both seem able tojustify their particular choice. Michael thinks that the tax advantagesare a very good reason for buying. Jonathan, however, believes that cashflow is so much better when renting. See whether you can help them maketheir decision.a) Does the home buyer enjoy tax advantages? Explain. b) Discuss Jonathan’s belief that cash flow is better with renting. c) Suggest some reasons why Michael might consider renting rather than purchasing housing.

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