Question

Jerry is preparing to go to college in the fall and is worried about expenses. He has $189 in his checking account, $2,500 in his savings account, and a CD account for $5,000 that matures September 1. He owes his brother $75 for a joint gift. His parents are able to send him $1,000 each month, but room, board, and tuition will run $1,800 per month. He is unsure of his book expenses.

1-Prepare Jerry’s personal financial net worth statement. What is his current net worth?

2-Will he be able to focus his time on school, or will he need to subsidize his expenses by getting a job or a student loan for the next year? To assess his choices, create his cash flow statement. Does he have a positive or a negative cash flow?

3-What are the risks he incurs by taking fewer credits each year so he can more easily handle a part-time job to offset his living expenses?

4-What do you think Jerry should do?

Answer 1

1]      net worth statement

checking account = $189

savings account = $2,500

CD account = $5,000

   Total Assets = $7689

less: Borrow from brother = $75   

   net worth = $7614

2] He has a negative cash flow of $800 [$1800 - $1000] per month totalled $9600.He will need to subsidize his expenses by getting a job or a student loan for the next year because his cash inflows ($1000) are less than the cash outflow ($1800)

3] Compromising in studies that might effect his graudation completion on time, loss of income that would have earned from full time job and cost of credit expenses each year that is another liability to pay/

4] In this case, Jerry should go for student's education loan in which interest cost will be lesser than the other credits and concentrate on his studies rather than doing part-time job .