Question No.

01

Critical Thinking Question No. 02

$
Solven
cy

Total Net worth/Total Assets

60245/215570

28%

Burt and Emily are holding $60245 net worth of their total assets of $215570 that is
28% that is an average one and we have to check other ratios as well.
$
Liquidi

Liquid Assets/Total Current

ty

Liabilities

3570/2675

1.334579439

Liquidity ratio is 1:1.335 that is good and shows their strong ability to meet their
urgent expenses.
$
Savin

Cash Surplus/Income after

gs

Taxes

27048/69248

39%

Saving ratio is 39%and it is excellent that shows their future strength

Debt

Total Debt Payments/Gross

Service

Income

$
(148000+4650+675)/10
0000

1.53325

Debt Service Ratio is slightly high that is more than but debt service is more than
one year except a minor amount of credit card so Burt and Emily are in save
position.
Keeping in view the above ratios Burt and Emily are in strong position as they are
saving 39% of their income and strongly able to meet their current liabilities.
In long term they are also able to pay their debts because Total debt is 153325
dollars and this is more than one year, so Burt and Emily can pay this easily as their
one year debt service ratio is 1.53325 but its slightly risky.

Burt and Emily long term position is slightly risky there is no any big threat as
average is 1.50 or 50% each.

Question No. 03
Burt and Emily are going through a critical period and very worried about their
future as Emily will stop doing her job where she is currently earning $36000 in
gross. Mr. Burt was just trying to motivate her and convincing her that he can bear
all of the expenses in future.
It was a fallacious argument that he will get a promotion that do increase his salary
by 10% as future is uncertain and there is no any guarantee that he will get the
promotion and on the other side even he get the promotion there is inflation as well
that ultimately reduce the taste of increment, research also proves that expenses
also increase with a promotion or increase in salary so this argument is not logical
and is not the solution to achieve their long term goals.
This argument is also fallacious that his boss assure his bright future with bank
because future is uncertain and his boss is also have limited resources as he is also
an employee in the bank and cannot guarantee the brightness of future and this is
not the solution to achieve their term goals.
Mr. Burt also argued that he can encash their investment in common stock but this
strategy is perfect for short term only and is not beneficial for long term and can
lead to instability.
Mr. Burt and Ms. Emily Should take these actions for long term:

Minimize and Control the expenses and make an economical budget

Make a good plan for their future income and expenses
She should start job again at earliest possible
Mr. Burt should also need to think about change of bank or job in order to
improve his salary.

Mr. Burt and Ms. Emily Should take these actions for short term:
They can take short term loan in case emergency
Emily can start home tuitions, baby siting or any other home based job
Mr. Burt should Start part time job/business as well
They also can rent out this house and move to a less expensive
accommodation.