Financial Plan

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Sample-EspositoCaseSolution.xls
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Assumptions

Assumptions that can be changed for the case:
As the instructor, make entries on the yellow cells of this tab. The information in the yellow cells will automatically calculate
and flow to the remaining tabs. Therefore, the remaining cells are locked down. To unlock, use the password: CMin7b5
Date of Balance Sheet and Investment Portfolio As of December 31, 2017
Time Period for Statement of Cash Flows For the Period January 1 - December 31, 2017
Risk-free Rate 1.25% (Enter a number between 0.95% - 1.25%)
Market Risk Premium 5.25% (Enter a number between 5.00% - 7.25%)
Savings Account 2,500 (Enter a number $0 - $120,000)
Restaurant Held in S Corp 1,000,000 (Enter a number $100,000 - $1,000,000)
Cost Basis in Restaurant 910,000 (Enter a number $10,000 - $910,000)
Credit Card Debt 15,871 (Enter a number $0 - $20,000)
Estate as Beneficiary for Life Insurance Yes Type "Yes" or "No"
Stock Portfolio Inputs that can be changed:
Stock A's Beta 1.1 (Enter a beta between 0.5 - 2.10)
Stock A's Expected Dividend Growth Rate 3.25% (Enter a growth rate between 2.75% - 3.25%)
Stock A's Cost Basis 200,000 (Enter a cost basis rate between $75,000 - $200,000)
Bond Inputs that can be changed:
Treasury Security A - 2 years to maturity $300,000 (Enter a beta between $100,000 - $400,000)
Corporate Security B - 4.5 years to maturity $200,000
Total Bond Portfolio $500,000 Par & Total
Coupon 1 Coupon 2 Coupon 3 Coupon 4 FMV
Treasury Security A - 2 years to maturity 2.5000% (Enter a coupon rate between 2.00% - 3.00%) 3,750.00 3,750.00 3,750.00 303,750.00
Current Yield for Treasury Security A 1.8750% (This will create a premium bond calculation) 1.0094 1.0188 1.0284 1.0380
3,715.17 3,680.66 3,646.48 292,621.42 303,663.73
Par & Total
Coupon 1 Coupon 2 Coupon 3 Coupon 4 Coupon 5 Coupon 6 Coupon 7 Coupon 8 Coupon 9 FMV
Corporate Security B - 4.5 years to maturity 4.1500% (Enter a coupon rate between 4.00% - 4.50%) 4,150.00 4,150.00 4,150.00 4,150.00 4,150.00 4,150.00 4,150.00 4,150.00 204,150.00
Current Yield for Corporate Security B 4.5650% (This will create a discount bond calculation) 1.0228 1.0462 1.0700 1.0945 1.1195 1.1450 1.1711 1.1979 1.2252
4,057.39 3,966.85 3,878.32 3,791.78 3,707.16 3,624.43 3,543.55 3,464.47 166,623.93 196,657.89
PMT 1 PMT 2 PMT 3 PMT 4 PMT 5 PMT 6 PMT 7 PMT 8 PMT 9 PMT 10 PMT 11 PMT 12 PMT 13 PMT 14 PMT 15 PMT 16 PMT 17 PMT 18 PMT 19 PMT 20 PMT 21 PMT 22 PMT 23 PMT 24 PMT 25 PMT 26 PMT 27 PMT 28 PMT 29 PMT 30 PMT 31 PMT 32 PMT 33 PMT 34 PMT 35 PMT 36 PMT 37 PMT 38 PMT 39 PMT 40 PMT 41 PMT 42 PMT 43 PMT 44 PMT 45 PMT 46 PMT 47 PMT 48 PMT 49 PMT 50 PMT 51 PMT 52 PMT 53 PMT 54 PMT 55 PMT 56 PMT 57 PMT 58 PMT 59 PMT 60 PMT 61 PMT 62 PMT 63 PMT 64 PMT 65 PMT 66 PMT 67 PMT 68 PMT 69 PMT 70 PMT 71 PMT 72 PMT 73 PMT 74 PMT 75 PMT 76 PMT 77 PMT 78 PMT 79 PMT 80 PMT 81 PMT 82 PMT 83 PMT 84 PMT 85 PMT 86 PMT 87 PMT 88 PMT 89 PMT 90 PMT 91 PMT 92 PMT 93 PMT 94 PMT 95 PMT 96 PMT 97 PMT 98 PMT 99 PMT 100 PMT 101 PMT 102 PMT 103 PMT 104 PMT 105 PMT 106 PMT 107 PMT 108 PMT 109 PMT 110 PMT 111 PMT 112 PMT 113 PMT 114 PMT 115 PMT 116 PMT 117 PMT 118 PMT 119 PMT 120 PMT 121 PMT 122 PMT 123 PMT 124 PMT 125 PMT 126 PMT 127 PMT 128 PMT 129 PMT 130 PMT 131 PMT 132 PMT 133 PMT 134 PMT 135 PMT 136 PMT 137 PMT 138 PMT 139 PMT 140 PMT 141 PMT 142 PMT 143 PMT 144 PMT 145 PMT 146 PMT 147 PMT 148 PMT 149 PMT 150 PMT 151 PMT 152 PMT 153 PMT 154 PMT 155 PMT 156 PMT 157 PMT 158 PMT 159 PMT 160 PMT 161 PMT 162 PMT 163 PMT 164 PMT 165 PMT 166 PMT 167 PMT 168 PMT 169 PMT 170 PMT 171 PMT 172 PMT 173 PMT 174 PMT 175 PMT 176 PMT 177 PMT 178 PMT 179 PMT 180 PMT 181 PMT 182 PMT 183 PMT 184 PMT 185 PMT 186 PMT 187 PMT 188 PMT 189 PMT 190 PMT 191 PMT 192 PMT 193 PMT 194 PMT 195 PMT 196 PMT 197 PMT 198 PMT 199 PMT 200 PMT 201 PMT 202 PMT 203 PMT 204 PMT 205 PMT 206 PMT 207 PMT 208 PMT 209 PMT 210 PMT 211 PMT 212 PMT 213 PMT 214 PMT 215 PMT 216 PMT 217 PMT 218 PMT 219 PMT 220 PMT 221 PMT 222 PMT 223 PMT 224 PMT 225 PMT 226 PMT 227 PMT 228 PMT 229 PMT 230 PMT 231 PMT 232 PMT 233 PMT 234 PMT 235 PMT 236 PMT 237 PMT 238 PMT 239 PMT 240 PMT 241 PMT 242 PMT 243 PMT 244 PMT 245 PMT 246 PMT 247 PMT 248 PMT 249 PMT 250 PMT 251
Mortgage Interest Rate on Primary Residence 4.7500% Payment 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469 2,469
Beginning Mortgage Amount $473,250 Interest (1,873) (1,871) (1,869) (1,866) (1,864) (1,861) (1,859) (1,857) (1,854) (1,852) (1,849) (1,847) (1,844) (1,842) (1,839) (1,837) (1,834) (1,832) (1,829) (1,827) (1,824) (1,822) (1,819) (1,817) (1,814) (1,811) (1,809) (1,806) (1,804) (1,801) (1,798) (1,796) (1,793) (1,790) (1,788) (1,785) (1,782) (1,780) (1,777) (1,774) (1,771) (1,769) (1,766) (1,763) (1,760) (1,757) (1,755) (1,752) (1,749) (1,746) (1,743) (1,740) (1,737) (1,735) (1,732) (1,729) (1,726) (1,723) (1,720) (1,717) (1,714) (1,711) (1,708) (1,705) (1,702) (1,699) (1,696) (1,693) (1,690) (1,687) (1,684) (1,681) (1,677) (1,674) (1,671) (1,668) (1,665) (1,662) (1,658) (1,655) (1,652) (1,649) (1,645) (1,642) (1,639) (1,636) (1,632) (1,629) (1,626) (1,622) (1,619) (1,616) (1,612) (1,609) (1,606) (1,602) (1,599) (1,595) (1,592) (1,588) (1,585) (1,581) (1,578) (1,574) (1,571) (1,567) (1,564) (1,560) (1,556) (1,553) (1,549) (1,546) (1,542) (1,538) (1,535) (1,531) (1,527) (1,523) (1,520) (1,516) (1,512) (1,508) (1,505) (1,501) (1,497) (1,493) (1,489) (1,485) (1,481) (1,478) (1,474) (1,470) (1,466) (1,462) (1,458) (1,454) (1,450) (1,446) (1,442) (1,438) (1,434) (1,429) (1,425) (1,421) (1,417) (1,413) (1,409) (1,404) (1,400) (1,396) (1,392) (1,388) (1,383) (1,379) (1,375) (1,370) (1,366) (1,362) (1,357) (1,353) (1,348) (1,344) (1,340) (1,335) (1,331) (1,326) (1,322) (1,317) (1,312) (1,308) (1,303) (1,299) (1,294) (1,289) (1,285) (1,280) (1,275) (1,271) (1,266) (1,261) (1,256) (1,252) (1,247) (1,242) (1,237) (1,232) (1,227) (1,222) (1,217) (1,212) (1,207) (1,202) (1,197) (1,192) (1,187) (1,182) (1,177) (1,172) (1,167) (1,162) (1,157) (1,151) (1,146) (1,141) (1,136) (1,130) (1,125) (1,120) (1,114) (1,109) (1,104) (1,098) (1,093) (1,087) (1,082) (1,077) (1,071) (1,065) (1,060) (1,054) (1,049) (1,043) (1,037) (1,032) (1,026) (1,020) (1,015) (1,009) (1,003) (997) (992) (986) (980) (974) (968) (962) (956) (950) (944) (938) (932) (926) (920) (914) (908) (901) (895) (889) (883) (876) (870)
Monthly Mortgage Payment $2,468.70 Principal 595 598 600 603 605 607 610 612 615 617 619 622 624 627 629 632 634 637 639 642 644 647 649 652 655 657 660 662 665 668 670 673 676 678 681 684 686 689 692 695 697 700 703 706 708 711 714 717 720 723 725 728 731 734 737 740 743 746 749 752 755 758 761 764 767 770 773 776 779 782 785 788 791 794 798 801 804 807 810 814 817 820 823 826 830 833 836 840 843 846 850 853 856 860 863 867 870 873 877 880 884 887 891 894 898 902 905 909 912 916 919 923 927 930 934 938 942 945 949 953 957 960 964 968 972 976 979 983 987 991 995 999 1,003 1,007 1,011 1,015 1,019 1,023 1,027 1,031 1,035 1,039 1,043 1,048 1,052 1,056 1,060 1,064 1,068 1,073 1,077 1,081 1,085 1,090 1,094 1,098 1,103 1,107 1,111 1,116 1,120 1,125 1,129 1,134 1,138 1,143 1,147 1,152 1,156 1,161 1,165 1,170 1,175 1,179 1,184 1,189 1,193 1,198 1,203 1,208 1,212 1,217 1,222 1,227 1,232 1,237 1,241 1,246 1,251 1,256 1,261 1,266 1,271 1,276 1,281 1,286 1,292 1,297 1,302 1,307 1,312 1,317 1,322 1,328 1,333 1,338 1,344 1,349 1,354 1,360 1,365 1,370 1,376 1,381 1,387 1,392 1,398 1,403 1,409 1,414 1,420 1,426 1,431 1,437 1,443 1,448 1,454 1,460 1,466 1,471 1,477 1,483 1,489 1,495 1,501 1,507 1,513 1,519 1,525 1,531 1,537 1,543 1,549 1,555 1,561 1,567 1,574 1,580 1,586 1,592 1,599
Next 12 Months of Principal $9,256
Remaining Long-Term Mortgage Principal $423,760 Net Mortgage Outstanding 472,655 472,057 471,457 470,854 470,249 469,642 469,032 468,420 467,806 467,189 466,569 465,947 465,323 464,696 464,067 463,435 462,801 462,164 461,525 460,883 460,239 459,592 458,942 458,290 457,636 456,978 456,319 455,656 454,991 454,323 453,653 452,980 452,304 451,626 450,945 450,261 449,575 448,886 448,194 447,499 446,802 446,102 445,399 444,693 443,985 443,274 442,560 441,843 441,123 440,400 439,675 438,947 438,215 437,481 436,744 436,004 435,262 434,516 433,767 433,015 432,261 431,503 430,742 429,979 429,212 428,442 427,670 426,894 426,115 425,333 424,548 423,760 422,968 422,174 421,376 420,575 419,771 418,964 418,154 417,341 416,524 415,704 414,881 414,054 413,225 412,391 411,555 410,716 409,873 409,026 408,177 407,324 406,467 405,608 404,744 403,878 403,008 402,134 401,257 400,377 399,493 398,606 397,715 396,821 395,923 395,021 394,116 393,207 392,295 391,379 390,460 389,537 388,610 387,679 386,745 385,807 384,866 383,921 382,972 382,019 381,062 380,102 379,138 378,170 377,198 376,223 375,243 374,260 373,272 372,281 371,286 370,287 369,284 368,277 367,266 366,251 365,232 364,209 363,182 362,151 361,116 360,077 359,033 357,986 356,934 355,878 354,818 353,754 352,686 351,613 350,536 349,455 348,370 347,280 346,186 345,088 343,985 342,878 341,766 340,650 339,530 338,405 337,276 336,143 335,004 333,862 332,715 331,563 330,407 329,246 328,080 326,910 325,736 324,556 323,372 322,184 320,990 319,792 318,589 317,382 316,169 314,952 313,730 312,503 311,272 310,035 308,793 307,547 306,296 305,039 303,778 302,512 301,241 299,964 298,683 297,397 296,105 294,809 293,507 292,200 290,888 289,571 288,248 286,920 285,587 284,249 282,906 281,557 280,203 278,843 277,478 276,108 274,732 273,351 271,964 270,572 269,174 267,771 266,362 264,948 263,528 262,102 260,671 259,234 257,792 256,344 254,889 253,430 251,964 250,493 249,016 247,533 246,044 244,549 243,048 241,542 240,029 238,511 236,986 235,455 233,919 232,376 230,827 229,272 227,711 226,143 224,570 222,990 221,404 219,812 218,213
PMT 1 PMT 2 PMT 3 PMT 4 PMT 5 PMT 6 PMT 7 PMT 8 PMT 9 PMT 10 PMT 11 PMT 12 PMT 13 PMT 14 PMT 15 PMT 16 PMT 17 PMT 18 PMT 19 PMT 20 PMT 21 PMT 22 PMT 23 PMT 24 PMT 25 PMT 26 PMT 27 PMT 28 PMT 29 PMT 30 PMT 31 PMT 32 PMT 33 PMT 34 PMT 35 PMT 36 PMT 37 PMT 38 PMT 39 PMT 40 PMT 41 PMT 42 PMT 43 PMT 44 PMT 45 PMT 46 PMT 47 PMT 48 PMT 49 PMT 50 PMT 51 PMT 52 PMT 53 PMT 54 PMT 55 PMT 56 PMT 57 PMT 58 PMT 59 PMT 60 PMT 61 PMT 62 PMT 63 PMT 64 PMT 65 PMT 66 PMT 67 PMT 68 PMT 69 PMT 70 PMT 71 PMT 72 PMT 73 PMT 74 PMT 75 PMT 76 PMT 77 PMT 78 PMT 79 PMT 80 PMT 81 PMT 82 PMT 83 PMT 84 PMT 85 PMT 86 PMT 87 PMT 88 PMT 89 PMT 90 PMT 91 PMT 92 PMT 93 PMT 94 PMT 95 PMT 96 PMT 97 PMT 98 PMT 99 PMT 100 PMT 101 PMT 102 PMT 103 PMT 104 PMT 105 PMT 106 PMT 107 PMT 108 PMT 109 PMT 110 PMT 111 PMT 112 PMT 113 PMT 114 PMT 115 PMT 116 PMT 117 PMT 118 PMT 119 PMT 120 PMT 121 PMT 122 PMT 123 PMT 124 PMT 125 PMT 126 PMT 127 PMT 128 PMT 129 PMT 130 PMT 131 PMT 132 PMT 133 PMT 134 PMT 135 PMT 136 PMT 137 PMT 138 PMT 139 PMT 140 PMT 141 PMT 142 PMT 143 PMT 144 PMT 145 PMT 146 PMT 147 PMT 148 PMT 149 PMT 150 PMT 151 PMT 152 PMT 153 PMT 154 PMT 155 PMT 156 PMT 157 PMT 158 PMT 159 PMT 160 PMT 161 PMT 162 PMT 163 PMT 164 PMT 165 PMT 166 PMT 167 PMT 168 PMT 169 PMT 170 PMT 171 PMT 172 PMT 173 PMT 174 PMT 175 PMT 176 PMT 177 PMT 178 PMT 179 PMT 180 PMT 181 PMT 182 PMT 183 PMT 184 PMT 185 PMT 186 PMT 187 PMT 188 PMT 189 PMT 190 PMT 191 PMT 192 PMT 193 PMT 194 PMT 195 PMT 196 PMT 197 PMT 198 PMT 199 PMT 200 PMT 201 PMT 202 PMT 203 PMT 204 PMT 205 PMT 206 PMT 207 PMT 208 PMT 209 PMT 210 PMT 211 PMT 212 PMT 213 PMT 214 PMT 215 PMT 216 PMT 217 PMT 218 PMT 219 PMT 220 PMT 221 PMT 222 PMT 223 PMT 224 PMT 225 PMT 226 PMT 227 PMT 228 PMT 229 PMT 230 PMT 231 PMT 232 PMT 233 PMT 234 PMT 235 PMT 236 PMT 237 PMT 238 PMT 239 PMT 240
Mortgage Interest Rate on Vacation Home 5.2500% Payment 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077 4,077
Beginning Mortgage Amount $605,000 Interest (2,647) (2,641) (2,634) (2,628) (2,622) (2,615) (2,609) (2,603) (2,596) (2,590) (2,583) (2,577) (2,570) (2,563) (2,557) (2,550) (2,543) (2,537) (2,530) (2,523) (2,516) (2,510) (2,503) (2,496) (2,489) (2,482) (2,475) (2,468) (2,461) (2,454) (2,447) (2,440) (2,433) (2,425) (2,418) (2,411) (2,404) (2,396) (2,389) (2,381) (2,374) (2,367) (2,359) (2,352) (2,344) (2,336) (2,329) (2,321) (2,314) (2,306) (2,298) (2,290) (2,282) (2,275) (2,267) (2,259) (2,251) (2,243) (2,235) (2,227) (2,219) (2,211) (2,202) (2,194) (2,186) (2,178) (2,169) (2,161) (2,153) (2,144) (2,136) (2,127) (2,119) (2,110) (2,102) (2,093) (2,084) (2,076) (2,067) (2,058) (2,049) (2,040) (2,031) (2,022) (2,013) (2,004) (1,995) (1,986) (1,977) (1,968) (1,959) (1,949) (1,940) (1,931) (1,921) (1,912) (1,903) (1,893) (1,883) (1,874) (1,864) (1,855) (1,845) (1,835) (1,825) (1,815) (1,806) (1,796) (1,786) (1,776) (1,765) (1,755) (1,745) (1,735) (1,725) (1,714) (1,704) (1,694) (1,683) (1,673) (1,662) (1,652) (1,641) (1,631) (1,620) (1,609) (1,598) (1,587) (1,577) (1,566) (1,555) (1,544) (1,533) (1,521) (1,510) (1,499) (1,488) (1,476) (1,465) (1,454) (1,442) (1,431) (1,419) (1,407) (1,396) (1,384) (1,372) (1,360) (1,348) (1,337) (1,325) (1,312) (1,300) (1,288) (1,276) (1,264) (1,251) (1,239) (1,227) (1,214) (1,202) (1,189) (1,177) (1,164) (1,151) (1,138) (1,125) (1,113) (1,100) (1,087) (1,073) (1,060) (1,047) (1,034) (1,021) (1,007) (994) (980) (967) (953) (939) (926) (912) (898) (884) (870) (856) (842) (828) (814) (799) (785) (771) (756) (742) (727) (712) (698) (683) (668) (653) (638) (623) (608) (593) (578) (562) (547) (532) (516) (500) (485) (469) (453) (437) (422) (406) (389) (373) (357) (341) (324) (308) (292) (275) (258) (242) (225) (208) (191) (174) (157) (140) (123) (105) (88) (71) (53) (35) (18)
Monthly Mortgage Payment $4,076.76 Principal 1,430 1,436 1,442 1,449 1,455 1,461 1,468 1,474 1,481 1,487 1,494 1,500 1,507 1,513 1,520 1,527 1,533 1,540 1,547 1,554 1,560 1,567 1,574 1,581 1,588 1,595 1,602 1,609 1,616 1,623 1,630 1,637 1,644 1,651 1,659 1,666 1,673 1,681 1,688 1,695 1,703 1,710 1,718 1,725 1,733 1,740 1,748 1,756 1,763 1,771 1,779 1,786 1,794 1,802 1,810 1,818 1,826 1,834 1,842 1,850 1,858 1,866 1,874 1,883 1,891 1,899 1,907 1,916 1,924 1,932 1,941 1,949 1,958 1,967 1,975 1,984 1,992 2,001 2,010 2,019 2,028 2,036 2,045 2,054 2,063 2,072 2,081 2,090 2,100 2,109 2,118 2,127 2,137 2,146 2,155 2,165 2,174 2,184 2,193 2,203 2,213 2,222 2,232 2,242 2,252 2,261 2,271 2,281 2,291 2,301 2,311 2,321 2,332 2,342 2,352 2,362 2,373 2,383 2,393 2,404 2,414 2,425 2,436 2,446 2,457 2,468 2,478 2,489 2,500 2,511 2,522 2,533 2,544 2,555 2,567 2,578 2,589 2,600 2,612 2,623 2,635 2,646 2,658 2,669 2,681 2,693 2,705 2,716 2,728 2,740 2,752 2,764 2,776 2,789 2,801 2,813 2,825 2,838 2,850 2,863 2,875 2,888 2,900 2,913 2,926 2,938 2,951 2,964 2,977 2,990 3,003 3,016 3,030 3,043 3,056 3,070 3,083 3,097 3,110 3,124 3,137 3,151 3,165 3,179 3,193 3,207 3,221 3,235 3,249 3,263 3,277 3,292 3,306 3,321 3,335 3,350 3,364 3,379 3,394 3,409 3,424 3,439 3,454 3,469 3,484 3,499 3,514 3,530 3,545 3,561 3,576 3,592 3,608 3,623 3,639 3,655 3,671 3,687 3,703 3,720 3,736 3,752 3,769 3,785 3,802 3,818 3,835 3,852 3,869 3,886 3,903 3,920 3,937 3,954 3,971 3,989 4,006 4,024 4,041 4,059
Next 12 Months of Principal $30,071
Remaining Long-Term Mortgage Principal $342,623 Net Mortgage Outstanding 603,570 602,134 600,692 599,243 597,788 596,326 594,858 593,384 591,904 590,416 588,923 587,422 585,916 584,402 582,882 581,356 579,822 578,282 576,736 575,182 573,622 572,054 570,480 568,900 567,312 565,717 564,115 562,506 560,891 559,268 557,638 556,001 554,357 552,705 551,046 549,380 547,707 546,027 544,339 542,644 540,941 539,231 537,513 535,788 534,055 532,315 530,567 528,812 527,048 525,277 523,499 521,712 519,918 518,116 516,306 514,488 512,662 510,828 508,986 507,136 505,278 503,412 501,538 499,655 497,765 495,866 493,958 492,043 490,119 488,186 486,245 484,296 482,338 480,371 478,396 476,412 474,420 472,419 470,409 468,390 466,362 464,326 462,281 460,226 458,163 456,091 454,009 451,919 449,819 447,711 445,593 443,465 441,329 439,183 437,027 434,863 432,688 430,505 428,311 426,108 423,896 421,674 419,442 417,200 414,949 412,687 410,416 408,135 405,844 403,542 401,231 398,910 396,578 394,237 391,885 389,522 387,150 384,767 382,373 379,969 377,555 375,130 372,695 370,248 367,791 365,324 362,845 360,356 357,856 355,345 352,823 350,289 347,745 345,190 342,623 340,045 337,456 334,856 332,244 329,621 326,986 324,340 321,682 319,013 316,332 313,639 310,935 308,218 305,490 302,750 299,997 297,233 294,457 291,668 288,868 286,055 283,229 280,392 277,542 274,679 271,804 268,916 266,016 263,103 260,178 257,239 254,288 251,324 248,346 245,356 242,353 239,336 236,307 233,264 230,207 227,138 224,055 220,958 217,848 214,725 211,587 208,436 205,271 202,093 198,900 195,693 192,473 189,238 185,989 182,726 179,449 176,157 172,851 169,531 166,196 162,846 159,482 156,103 152,709 149,300 145,877 142,438 138,984 135,516 132,032 128,533 125,018 121,489 117,943 114,383 110,806 107,214 103,607 99,983 96,344 92,688 89,017 85,330 81,626 77,907 74,171 70,419 66,650 62,865 59,063 55,245 51,410 47,558 43,689 39,804 35,901 31,981 28,044 24,090 20,119 16,130 12,124 8,100 4,059 0

Esposito Case

Anthony and Maria Esposito Case
You are a financial planner and you have met with new clients Anthony and Maria Esposito several times to gather information for the
purpose of developing a comprehensive financial plan.
Anthony Esposito is 55 years old, and his wife, Maria, is 47. They have two children, Anthony, Jr., age 12, and Mia, age 6. They live in
a beautiful house on the Passaic River and the home is titled in Maria’s name.
Tony owns and manages a restaurant in Hackensack, New Jersey. Maria does not work at this time because she stays at home to care
for the couple’s two children. However, she is planning to work as an independent contractor next year.
The restaurant is held in an S Corporation with Tony as the sole shareholder owning 100% of the S-Corp. stock. Although income can
fluctuate on a yearly basis, the restaurant typically averages an income of approximately $500,000 per year.
Tony’s younger brother, Vinnie Esposito, has helped Tony manage the restaurant ever since it opened. If Tony were to die prematurely
or become disabled, he would like Vinnie to buy the restaurant and continue to operate the family business. Tony wants to know how he
can maximize the value of the restaurant and provide for his family if an untimely tragedy were to occur.
The Espositos own an ocean-front beach home at the Jersey shore which is titled in Tony’s name. They are considering selling it in a
few years due to the potential risk of hurricane damage to the property. Although they had minimal damage to their property after
Hurricane Sandy, and the damage was covered by their homeowners insurance policy, many of their friends were not as fortunate.
Last summer Tony rented the beach house to a customer for 12 days for $12,000. He incurred $400 of expenses which were attributed
to cleaning the home after the renters left. The rental process went so smoothly that Tony and Maria have decided to rent the home again
for the entire year starting January 1, 2015 at $6,500 a month. When you inquired about the basis of the vacation home, Tony said that
he bought the land first for $75,000 and built the home gradually over the years, spending a total of $300,000.
The Espositos are very willing to take risks. Tony’s business strategies have involved taking on a great deal of risk throughout the years
that Tony felt he could control. In addition, Tony has experienced the risks and rewards of investing in the stock market for the past two
decades. However, after watching his father die a painful death from cancer due to second-hand smoke from working at a restaurant as
a bartender, Tony will not invest in tobacco companies.
Tony plans to retire in 15 years and sell the restaurant at that time. It is expected that their daughter Mia will complete her college
education in the same year. Tony will start collecting Social Security benefits when he is 70 years old.
Scope of the engagement: The Espositos have asked you to develop a comprehensive financial plan that will help them meet their goals
and help them improve their financial position. Tony wants you to prepare a statement of net worth and review their various insurance
policies for proper coverage. He wants a review of his investment portfolio and wants you to recommend an asset allocation strategy that
maximizes investment performance, is diversified, and matches his risk tolerance level. The couple is also concerned with the high taxes
they pay and want to know the tax ramifications for renting out their vacation home and how it affects their tax situation.
The Espositos are not concerned about saving for retirement since the sale of the restaurant will satisfy that goal, but Maria wants you
to recommend retirement plans that she can contribute to in her new business, and she wants to know when contributions should be
made. College funding is not an issue because Maria’s parents have established § 529 Plans for each child which will pay for all college
expenses.
Goals: Tony and Maria have worked with you to prioritize their goals in the following order.
1) Ensure the family is protected adequately in the event of an untimely death or disability.
2) Ensure that proper legal estate planning and business planning documents are in place to handle incapacity issues.
3) Have $30,000 available for a European vacation within the next few months.
4) Ensure that Tony’s investment portfolio meets his needs and expectations.
5) Reduce personal income taxes.
Risk tolerance: Tony is willing to assume a moderately high level of risk to grow his investments and achieve his investment goals.
Economic assumptions in retirement starting in 15 years: The Espositos expect to be in a 28% marginal tax bracket when Tony
retires. They believe they will require a return of 8.5% in retirement.
Economic Information when Anthony Retires in 15 Years:
Risk-free Rate 4.00%
Market Risk Premium 8.25%
Market Standard Deviation 10.75%
Inflation Rate 3.10%
Assets: FMV
Cash & Checking Account - Joint Account 19,350
Savings Account - POD (Vinnie) 2,500
Cash Value of Universal Life Insurance 55,489
Stocks - Joint Account 550,300 (Details Provided in Attached Detail Schedule)
Bonds - Joint Account 500,322 (Details Provided in Attached Detail Schedule)
Annuity Policy - Anthony is Owner & Annuitant 123,450 (Primary Beneficiary Maria, Secondary Beneficiary Anthony Jr.)
SEP-IRA for Anthony (See Detailed Schedule) 335,454 (Primary Beneficiary Maria, Secondary Beneficiary Anthony Jr. & Mia)
Restaurant Held in S Corporations 1,000,000
Primary Residence - FMV Land 400,000 (Owned by Maria)
Primary Residence - FMV Building 550,000
Cost Basis of Primary Residence 375,000
Vacation Home - FMV Land 350,000 (Owned by Anthony)
Vacation Home - FMV Building 750,000
Cost Basis of Vacation Home 375,000
Auto - Mercedes 75,000 (Owned by Anthony)
Auto - Audi 35,000 (Owned by Maria)
Furniture & Personal Property 350,000 (Owned as Joint Tenants)
Monthly Mortgage on Primary Residence 2,468.70 (30-year mortgage with 300 payments remaining as of the balance sheet date)
Original Mortgage Amount 473,250
Interest Rate on Primary Residence Mortgage 4.75%
Monthly Mortgage on Vacation Home 4,076.76 (20-year mortgage with 117 payments remaining as of the balance sheet date)
Original Mortgage Amount 605,000
Interest Rate on Vacation Home Mortgage 5.25%
Current Credit Card Debt 15,871 ($15,871 of Maria's Credit Card liability to be paid within 12 months)
Current Economic Information
Risk-free Rate 1.25%
Market Risk Premium 5.25%
Market Standard Deviation 10.75%
Inflation Rate 3.00%
Cost of administration, burial expense and state death taxes for each spouse upon death:
Administrative expense $25,000
Burial Expenses $15,000
State Death Taxes $0
Wills:
Anthony will bequest the S Corporation to his nephew Vinnie Esposito and $10,000 outright to the Heart Foundation. The
rest and residue of Anthony's estate will pass to his wife Maria, as primary beneficiary. Maria has executed a will that leaves
her estate to Anthony, as primary beneficiary. The secondary beneficiaries for both spouse's estates are the children Anthony,
Jr. and Mia, per stripes, in equal proportions.
Homeowners Policy - Primary Residence
Type of Policy HO-3
Face Amount $425,000
Premium $3,500
Deductible $1,000
Liability $250,000
Medical Payments $50,000 Per Person Per Occurrence
Anniversary Date July 15th
Endorsements None
Homeowners Policy - Vacation Home
Type of Policy HO-3
Face Amount $575,000
Premium $4,000
Deductible $1,000
Liability $250,000
Medical Payments $50,000 Per Person Per Occurrence
Anniversary Date July 15th
Endorsements None
Automobile Policy
Premium $5,000
Bodily Injury & Property Damage $200,000 / $600,000 / $15,000
Comprehensive Deductible $1,000
Collision Deductible $500
Anniversary Date July 15th
Umbrella Policy
Premium $400
Coverage $1,000,000
Anniversary Date July 15th
Health Insurance Policy
Premium $1,500 Per Month
Coverage Major Medical 75% / 25%
Deductible Per Doctor Visit $100 Per Visit, No Yearly Maximum
Family Stop Loss $5,000
Lifetime Maximum Payout $1,000,000
Anniversary Date Jan 1st
Disability Policy
Premium $2,000 Per Quarter
Owner Anthony Esposito
Policy Type Personally Owned and Paid For by Anthony
Coverage 60% of Income or $240,000 (whichever is less)
Elimination Period 90 Days
Coverage Period Payout Not to Exceed 5 Years or Age 65 (whichever comes first)
Anniversary Date May 15th
Life Insurance - Policy
Insured Anthony Esposito
Owner Anthony Esposito
Beneficiary Estate of Anthony Esposito
Face Amount $500,000
Type of Policy Variable Life
Anniversary Date June 9th
Total Contributions $150,000
Annual Premium $25,000
Annuity Policy
Type of Policy Non-Qualified Single Premium Deferred Annuity (SPDA)
Issue Date July 18, 2005
Owner Anthony Esposito
Primary Beneficiary Maria Esposito
Secondary Beneficiary Anthony Esposito Jr.
Original Investment into SPDA $105,000
Other Additions $0
Other Withdrawals $0

Esposito Balance Sheet

Statement of Financial Position
Anthony and Maria Esposito
Balance Sheet / Statement of Financial Worth
As of December 31, 2017
Assets(1) Liabilities & Net Worth(2)
Cash and Equivalents Liabilities (Current)
JT Cash & Checking $ 19,350 Credit Card Debt $ 15,871 W
H Savings Account - POD Vinnie Esposito 2,500 Current Portion - Primary Residence 9,256 W
H Cash Value of VUL Insurance 55,489 Current Portion - Vacation Home 30,071 H
Total Cash and Equivalents $ 77,339 Total Current Liabilities $ 55,198
Invested Assets Liabilities (Long-Term)
JT Stocks $ 550,300 Long-Term Portion - Primary Residence $ 423,760 W
JT Bonds 500,322 Long-Term Portion - Vacation Home 342,623 H
H Annuity Policy (3) 123,450 Total Liabilities Long-Term $ 766,383
H SEP IRA (4) 335,454
H Restaurant Held in S Corporations (5) 1,000,000
Total Invested Assets $ 2,509,526 Total Liabilities $ 821,581
Personal-Use Assets
W Primary Residence (6) $ 950,000
H Vacation Home (7) 1,100,000 Net Worth $ 4,275,284
H Auto - Mercedes 75,000
W Auto - Audi 35,000
JT Furniture & Personal Property 350,000
Total Use Assets $ 2,510,000
Total Assets $ 5,096,865 Total Liabilities & Net Worth $ 5,096,865
Notes to Financial Statements:
(1) = All assets are stated at fair market value.
(2) = Liabilities are stated at principal only.
(3) = (Primary Beneficiary Maria, Secondary Beneficiary Anthony Jr.)
(4) = (Primary Beneficiary Maria, Secondary Beneficiary Anthony Jr. & Mia)
(5) = Cost Basis of Restaurant is $ 910,000
(6) = Primary Residence FMV of Land $400,000 Cost Basis $375,000
(7) = Vacation Home FMV of Land $400,000 Cost Basis $375,000
3) Ratio Analysis:
Current Ratio = Current Assets
Current Liabilities
Current Ratio = 77,339
55,198
Current Ratio = 1.40
4) Monthly Housing Costs Ratio Analysis:
Monthly Housing Costs Ratio = Monthly Housing Costs
Yearly Income / 12 Months
Monthly Housing Costs Ratio = $2,468.70 [a] + $1,941.67 [b] + $291.67 [c]
$529,372 / 12 Months
Monthly Housing Costs Ratio = 0.11 Pass as Ratio < 28%
Monthly Housing Costs = Principal and Interest on Mortgage + Real Estate Taxes + Homeowners Insurance
[a] = Home Mortgage Monthly Payment
[b] = Monthly Real Estate Taxes $23,300 / 12 = $1,941.67
[c] = Monthly Home Owners Insurance $3,500 / 12 = $291.67
5) Monthly Housing Costs & Other Debt Ratio Analysis:
Monthly Housing Costs & Other Debt Ratio = Monthly Housing Costs
Yearly Income / 12 Months
Monthly Housing Costs & Other Debt Ratio = $2,468.70 [a] + $1,941.67 [b] + $291.67 [c] + $1,322.58 [d] + $7,076.76 [e]
$529,372 / 12 Months
Monthly Housing Costs & Other Debt Ratio = 0.30 Pass as Ratio < 36%
Monthly Housing Costs = Principal and Interest on Mortgage + Real Estate Taxes + Homeowners Insurance
[a] = Home Mortgage Monthly Payment
[b] = Monthly Real Estate Taxes $23,300 / 12 = $1,941.67
[c] = Monthly Home Owners Insurance $3,500 / 12 = $291.67
[d] = Monthly Credit Card Principal $15,871 / 12 = $1,322.58
[e] = Vacation Home Amounts: Mortgage Monthly Payment $4,076.76 + Real Estate Taxes $32,000 / 12 + Insurance $4,000 / 12

Cash Flow

Anthony & Maria Esposito
Statement of Cash Flow
For the Period January 1 - December 31, 2017
Cash Inflows
Tony W-2 From Restaurant $ 350,000
K-1 Earnings from Restaurant $ 150,000
Investment Income - Dividend Income 13,572
Investment Income - Interest Income 15,800
Total Income $ 529,372
Cash Outflows
Mortgage Payments (Principal) - Residence $ 8,827
Mortgage Payments (Interest) - Residence 20,797
Total Mortgage Payments (P & I) - Residence 29,624
Mortgage Payments (Principal) - Vacation Home 28,537 0
Mortgage Payments (Interest) - Vacation Home 20,384
Total Mortgage Payments (P & I) - Vacation Home 48,921
Real Estate Taxes - Residence 23,300
Real Estate Taxes - Vacation Home 32,000
Food 10,000
Utilities, Cable, Etc. 7,500
Auto Excise 2,250
Cell Phone 2,400
Home Maintenance (Lawn, Snow, Etc.) & Repairs 6,500
Charity (Cash) 30,000
Out of Pocket Medical 7,000
Personal Care 8,000
Clothing and Cleaning 18,205
Homeowners Insurance Premiums - Primary Residence 3,500
Homeowners Insurance Premiums - Vacation Home 4,000
Auto Insurance Premiums 5,000
Umbrella Policy Premiums 400
Health Insurance Premiums 18,000
Disability Premiums 8,000
Premiums on Whole Life Insurance Policy 25,000
Vacation 30,000
Children Activities, Sports, Etc. 7,500
Children Allowance 3,000
Gas, Tolls, Auto Repairs 4,400
Membership 2,800
Entertainment, Dining Out, Fun Money 24,000
Federal & State Income Taxes 135,000
Social Security & Medicare taxes 12,124
Total Expenses $ 508,425
Net Disposable Income $ 20,947

Insurance Analysis

Anthony "Tony" & Maria Esposito
Insurance Analysis
If there is a fire to the primary residence creating $100,000 of damage, what will the homeowners policy cover and calculate any tax
benefit?
1) Homeowners Benefit Calculation:
$425,000 Homeowners Policy x $100,000 Loss -$1,000 Deductible = $95,591 Insurance Reimbursement
($950,000 FMV - $400,000 Land) x 80%
Use the following information for questions 2 - 4:
If Anthony and Maria are injured and become disabled on January 1st when their car slid on ice and flipped over, what disability benefits
benefits will be received as of December 31st. Assume the auto had $14,000 of damage, and each had $125,000 of medical expenses.
Assume both become disabled, using a monthly calculation and not actual days, what benefits would be received and what are the tax
implications? Ignore any possible disability benefits under the Social Security rules.
2) Tony's Disability Benefits Calculation:
Disabled on January 1st, with a 3 month elimination period, causing benefits to start April 1st. Thus, Tony will receive
9 months of benefits (April - December of current year).
Payment to be received per month $20,000.00 = (Lessor of $240,000 or $500,000 x 60%) / 12 months
Payments received (April - December) x 9 months
Gross payments received for the year $180,000.00
Total Benefits are Not Taxable $180,000.00
Maria's Disability Benefits Calculation:
Because Maria as no earned income, there is no personal disability policy that she will collect benefits from.
What is the insurance reimbursement for this accident under the PAP?
3) Personal Auto Policy (PAP) Benefits Calculation:
The auto policy split limits are: $200,000 / $600,000 / $15,000
Total Damages $14,000
Less: Deductible (1,000)
Insurance Reimbursement $13,000
What will be reimbursed for the two of them under their health insurance policy?
4) Tony's Health Insurance Benefits Calculation:
Medical expense $125,000 Total Medical $125,000
Less: Deductible ($100) Less: Deductible ($100)
Net $124,900 Less: Co-Insurance ($4,900)
Coinsurance percentage x 25% Tony's reimbursed medical $120,000
Mary's coinsurance amount $4,900
Total Medical $125,000
Less: Reimbursed medical ($120,000)
Tony's medical expenses $5,000
Mary's Health Insurance Benefits Calculation:
Medical expense $125,000 Total Medical $125,000
Less: Deductible - Stop loss met by Tony $0 Less: Deductible $0
Net $125,000 Less: Co-Insurance $0
Coinsurance percentage x 25% Mary's reimbursed medical $125,000
Mary's coinsurance amount $0
Total Medical $125,000
Less: Reimbursed medical ($125,000)
Mary's medical expenses $0
Total Insurance Reimbursement:
Tony $120,000
Mary $125,000
Total $245,000
Upon the death of eithor Anthony or Mary, they would like to have the following death benefits:
1) Pay off each of their portion of debt and mortgage balances
2) Present value to fund retirement for Tony $450,000
3) Present value to fund retirement for Maria $650,000
4) Pay for administrative and burial expenses
5) Have an extra $250,000 for other spending
5) Insurance Needs Analysis: Anthony Maria
Credit Card Debt $ - $ 15,871
Current Portion - Primary Residence - 9,256
Long-Term Portion - Primary Residence - 423,760
Current Portion - Vacation Home 30,071 -
Long-Term Portion - Vacation Home 342,623 -
Debt Amount 372,695 448,886
Present Value to Fund Retirement 450,000 650,000
Administrative Expense 25,000 25,000
Burial Expenses 15,000 15,000
Extra Amount for Spending 250,000 250,000
Total Need 1,112,695 1,388,886
Less: Current Insurance (500,000) -
Shortfall 612,695 1,388,886

Investment Portfolios

Anthony & Maria Esposito
Supplemental Investment Information
As of December 31, 2017
Stock Portfolio
Current Expected Expected Total Return
Date Shares Cost FMV as of Dividend Growth of
Stock Acquired owned Basis Today Beta Per Share Dividend
A 02/05/2003 3,000 $200,000 $150,000 1.1 $2.35 3.25% 7.15%
B 07/12/00 10,000 $135,000 $10,300 0.9 $0 0.00% 5.85%
C 12/12/00 1,450 $100,000 $25,000 1.95 $0 0.00% 12.68%
D 04/04/03 5,100 $150,000 $275,000 1.25 $0.62 1.50% 8.13%
E 05/29/09 1,600 $85,000 $90,000 0.75 $2.10 3.75% 4.88%
Totals $670,000 $550,300
Bond Portfolio
Date Maturity Coupon Yield as of FMV as of
Bond Acquired in Years Rate Today Cost Basis Today
300 Treasury Security A* 10/18/09 2 2.5000% 1.8750% $300,000 $303,664
200 Corporate Security B* 07/26/12 4.5 4.1500% 4.5650% $200,000 $196,658
Totals $500,000 $500,322
* = Both bonds purchased at par and have no accrued interest.
SEP IRA Portfolio
Mutual Coefficient of Expected Cost FMV as of
Fund Determination Return Beta Basis Today
Balanced 0.98 5.56% 0.82 $78,200 $110,041
Growth 0.93 8.81% 1.44 $30,500 $41,932
Bond 0.95 6.03% 0.91 $82,300 $99,636
International 0.94 10.33% 1.73 $69,000 $83,845
Totals $260,000 $335,454
The above portfolio has been managed by a CFA over the past several years. After doing extensive research, you have determined that all of
the "A" share mutual funds have the highest Morningstar rating for periods in excess of 1 years with very high information ratios.
1) Investment Policy Statement for Anthony and Maria Esposito
Objectives:
Return Objective A total return approach should be used to pursue the Esposito’s income objectives as well as preservation of capital.
Risk Tolerance The Esposito's are in the accumulation phase of the lifecycle of wealth accumulation. They have an above-average
willingness take on risk. Based on their overall wealth position, they have an above-average ability to take risk.
Constraints:
Time Horizon The Esposito's have a multistage time horizon. The first stage will last for approximately 15 years until Mia graduates
college. The second stage will be the retirement stage which could last for 30 years or more.
Liquidity The current liquidity need is $30,000 for a vacation to Europe planned in the next few months.
Laws and Regulations No special legal or regulatory issues are known at the present time. However, the Esposito's must review their will.
Taxes Taxes are an area of concern. The bulk of the income generated by the portfolio will likely be taxed as ordinary income.
There total (federal and state) marginal tax rate is 47%. Taxes are part of her spending budget and therefore do not have to be
taken into account in the discount rate for the portfolio return requirement.
Unique Circumstances The value of the S Corporation is a significant value to the Esposito's portfolio. In addition, stock A has a low cost basis
and is approximately 38% of his portfolio. Lastly, no tobacco stocks are to be purchased for his investment portfolio.
2) Weighted Beta of Stock Portfolio:
Weighted Weighted
Stock FMV Average Beta Beta
A $150,000 27.26% 1.1 0.2998
B $10,300 1.87% 0.9 0.0168
C $25,000 4.54% 1.95 0.0886
D $275,000 49.97% 1.25 0.6247
E $90,000 16.35% 0.75 0.1227
$550,300 100.00% 1.1526
3) CAPM of Stock Portfolio:
The CAPM for the portfolio is = Risk-free Rate + Beta of Portfolio x Market Risk Premium
The CAPM for the portfolio is .0730 = .0125 + 1.1526 x .0525
Assume that the stock portfolio had a 7.5% return and a standard deviation of 14%, what is the Sharpe Ratio of the portfolio and
how did his portfolio compare to the Sharpe Ratio of the market portfolio?
4) Sharpe Ratio of the Stock Portfolio and the Market:
The Sharpe Ratio for the portfolio is: (Return on the Portfolio - Risk-free Rate) / Standard Deviation of the Portfolio
The Sharpe Ratio for the portfolio is: (.075 - .0125) / .14 or .4464
The Sharpe Ratio for the market is: (Return on the Portfolio - Risk-free Rate) / Standard Deviation of the Market. Note - numerator is the market risk premium.
The Sharpe Ratio for the market is: (.0525) / .1075 or .4884
Because the Sharpe Ratio for the Market of .4884 is greater than the portfolio of .4464, the portfolio under performed on a total risk-adjusted basis.
5) Portfolio Recommendations:
Because the portfolio has only 5 stock, it is not diversified. In addition, the total cost basis of the stocks is $670,000 and the FMV is $550,300 allowing for tax
harvesting. In addition, the Esposito's are currently in the a high tax bracket. Although the Treasury bond is not subject to state income tax, it is subject to
federal tax. Also, the corporate bond is subject to federal and estate taxes. Evaluate whether it would be better to allocate to tax-free municipal bonds.
The SEP IRA portfolio is being managed quite well and no recommendations are to be made at this time to these "A" share mutual funds. Based on high
third party ratings over at least 10 year periods and a high coefficient of determination and information ratio, the portfolio has very little unsystematic risk and
the asset allocation fits the risk profile of Tony.

Tax Analysis

Anthony "Tony" & Maria Esposito
Tax Analysis
Tony rentend his NJ shore vacation home for 12 days during the current year for $12,000. How would this be treated on the tax return
if there are $400 of expenses attributable to cleaning the place after the renters left?
1) Rental of Vacation Home for 12 Days:
There is no rental income to report when you rent the house for fewer than 15 days. In addition, no expenses can be taken. Therefore,
$12,000 will be tax-free and the $400 will be a non-deductible personal expense.
Because the rental went so smoothly, Tony and Maria have decided to rent for the entire year starting January 1, 2015 at $6,500 per month.
Using the template provided, complete the net rental income or expense and explain how it will be taxed. When inquiring about the basis of
the vacation home of $375,000 on the balance sheet, Tony stated he bought the land first for $75,000 and built the home with other
improvements over the years for a total of $300,000. Use the MACRS, 27.5 year, 1st month, mid-month depreciation percentage of 3.485%.
2) Rental of Vacation Home for the Entire Tax Year:
Gross Income $ 78,000
Operating Expenses:
Taxes $ (33,000)
Utilities (4,750)
Maintenance (5,000)
Insurance (4,100)
Total Operating Expenses $ (46,850)
Net Operating Income $ 31,150
Less: Financing (18,850)
Less: Depreciation (10,455)
Net Income $ 1,845
The $1,845 of rental income will be taxed as ordinary income.
Because the rental went so smoothly, Tony and Maria have decided to rent for the entire year starting January 1, 2015 at $6,500. Using
the template provided, complete the net rental income or expense and explain how it will be taxed. When inquiring about the basis of
the vacation home of $375,000 on the balance sheet, Tony stated he bought the land first for $75,000 and built the home with other
improvements over the years for a total of $300,000. Use the MACRS, 27.5 year, 1st month, mid-month depreciation percentage of 3.485%.
3) Taxes Related to Maria's net subcontracting income of $10,000:
Net Self-Employment income $10,000.00
Self Employment Percentage x 92.35%
Self Employment Tax Base $9,235.00
FICA Liability at 12.40% $1,145.14
Medicare Liability at 2.90% $267.82
Self-Employment Tax Liability $1,412.96
Net Self-Employment income $10,000.00
State Marginal Tax Rate x 7%
State Tax Liability $700.00
Net Self-Employment income $10,000.00
Less: S/E Tax Deduction ($706.48)
Less: State Tax Liability Deduction ($700.00)
Net Subject to Federal Marginal Tax Rate $8,593.52
Federal Marginal Tax Rate x 39.6%
Federal Tax Liability $3,403.03
Net Self-Employment income $10,000.00
Less: Self-Employment Tax Liability ($1,412.96)
Less: State Tax Liability ($700.00)
Less: Federal Tax Liability ($3,403.03)
Net After Taxes $4,484.01
The Net Percentage After Taxes 44.84%
Tax Burden Percentage 55.16%
Total 100.00%

Retirement Analysis

Anthony "Tony" & Maria Esposito
Retirement Analysis
Assume Maria has the $10,000 of net schedule C income from the prior tax year. During a meeting in January of the new tax year, she
informs you of this income and is excited that the income will continue to increase in the coming years working as a sub contractor. She
will not have employees and wants to contribute the maximum amount to a retirement plan for the previous year. Assuming the self-
employment tax liability is $1,400, what is the maximum she can contribute and when is it due?
1) Self-Employment Contribution and Due Date:
Because the tax year is over, Maria cannot establish a SIMPLE IRA or a qualified account such as a defined benefit or defined contribution plan.
However, she can contribute to a SEP-IRA by the due date of the tax return, including any extension. She would complete Form 5305-SEP and
be able to fund $1,870, calculated as:
Net Schedule C Income $10,000
Less: 1/2 of Self Employment Tax ($700) (Given in the problem was $1,400 of S/E tax liability)
Base for Contribution $9,300
Contribution percentage (.25 / 1.25 or 20%) 20%
Maximum SEP Deduction $1,860 This is due April 15th or October 15th if the return has been extended.
Assume the Maria's income is going to increase greatly, what other retirement plans can you recommend and when do they need to be
established to make a deduction for the current tax year?
2) Plan Recommendations:
SIMPLE IRA - Complete Form 5305-Simple to establish the plan. Can contribute a $12,000 with a higher percentage of wages compared to a
qualified plan. The plan must be established by Oct. 1st of the year you want to make the first contribution.
Defined Benefit Plan - Can contribute up to the actuarial determined amount. The older the Maria is, the more that can be contributed. The plan
must be established by December 31st of the year you want to make the first contribution. Establishing and maintaining the plan will be quite costly.
Maria is subject to recurring annual mandatory funding obligation, regardless of a profit or loss.
Defined Contribution Plan - Can contribute 25% of earnings up to $53,000 plus a $6,000, caych-up adjustment. The plan must be established by
December 31st of the year you want to make the first contribution. Establishing and maintaining the plan will be quite costly. However, there are no
mandatory funding requirements. A 401(k) option can be chosen with a election to defer salary of $18,000 for 2015.
When calculating a needs analysis, what is the inflation adjusted return you would use if inflation is 3.1%, and the required return is 8.5%
3) Inflation-Adjusted Return Calculation:
1.085 / 1.031 - 1 x 100 = 5.2376%

Estate Calculations

Assets(1) Liabilities & Net Worth(2)
Cash and Equivalents Liabilities (Current)
JT Cash & Checking 19,350 Credit Card Debt $ 15,871 W
H Savings Account - POD Vinnie Esposito 2,500 Current Portion - Primary Residence 9,256 W
H Cash Value of VUL Insurance 55,489 Current Portion - Vacation Home 30,071 H
Total Cash and Equivalents $ 77,339 Total Current Liabilities $ 55,198
Invested Assets Liabilities (Long-Term)
JT Stock Portfolio $ 550,300 Long-Term Portion - Primary Residence $ 423,760 W
JT Bond Portfolio 500,322 Long-Term Portion - Vacation Home 342,623 H
H Annuity Policy (3) 123,450 Total Liabilities Long-Term $ 766,383
H SEP IRA (4) 335,454
H Restaurant Held in S Corporations 1,000,000 Total Liabilities $ 821,581
Total Invested Assets $ 2,509,526
Personal-Use Assets
Primary Residence (5) $ 950,000
Vacation Home (6) 1,100,000 Net Worth $ 4,275,284
Auto - Mercedes 75,000
Auto - Audi 35,000
Furniture & Personal Property 350,000
Total Use Assets $ 2,510,000
W
H
H
W Total Assets $ 5,096,865 Total Liabilities & Net Worth $ 5,096,865
JT
Notes to Financial Statements:
(1) = All assets are stated at fair market value.
(2) = Liabilities are stated at principal only.
(3) = (Primary beneficiary Maria, secondary beneficiary Anthony Jr.)
(4) = (Primary beneficiary Maria, secondary beneficiary Anthony Jr. & Mia)
(5) = FMV of land is $400,000. Cost basis of land and home is $375,000
(6) = FMV of land is $340,000. Cost basis of land and home $375,000
1) The Gross Estate, Probate Estate, the Marital Deduction and the New Tax Basis to Heirs Calculations for Anthony:
FMV Gross Marital Wife's
Property at DOD Title Probate Estate Deduction New Basis
Life Insurance $ 500,000 H 500,000 500,000 500,000 500,000
Cash & Checking 19,350 JT - 9,675 9,675 9,675
Savings Account - POD 2,500 H - 2,500 - -
Cash Value of VUL Insurance - - - - -
Stock Portfolio 550,300 JT - 275,150 275,150 610,150 = $275150 + $670,000 x 50%
Bond Portfolio 500,322 JT - 250,161 250,161 500,161 = $250,161 + $500,000 x 50%
Annuity Policy 123,450 H - 123,450 123,450 105,000 Carryover Basis (IRD Asset)
SEP-IRA 335,454 H - 335,454 335,454 - Carryover Basis (IRD Asset)
Restaurant Held in S Corporations 1,000,000 H 1,000,000 1,000,000 - -
Primary Residence - W - - - -
Vacation Home 1,100,000 H 1,100,000 1,100,000 1,100,000 1,100,000
Autos 75,000 H 75,000 75,000 75,000 75,000
Furniture & Personal Property 350,000 JT - 175,000 175,000 175,000
Totals 4,556,376 2,675,000 3,846,390 2,843,890 3,074,986
2) The Adjusted Gross Estate, Tentative Tax Base and Federal Estate Tax Liability Calculations for Anthony: Taxable Tax
Tax Rate Schedule Rate Amount Liability
Gross Estate 3,846,390
Less: Administration (25,000) $0 - $10,000 18% 10,000 1,800
Less: Burial (15,000) $10,000 - $20,000 20% 10,000 2,000
Less: Casualty - $20,000 - $40,000 22% 20,000 4,400
Less: Debts (372,694) = Mortgage Vacation Home $40,000 - $60,000 24% 20,000 4,800
Adjusted Gross Estate 3,433,696 $60,000 - $80,000 26% 20,000 5,200
Less: Marital Deduction (2,843,890) $80,000 - $100,000 28% 20,000 5,600
Less: Charitable Deduction (10,000) Per the will, there is a $10,000 bequest to the Heart Foundation $100,000 - $150,000 30% 50,000 15,000
Taxable Estate 579,806 $150,000 - $250,000 32% 100,000 32,000
Add: Adjusted Taxable Gifts - $250,000 - $500,000 34% 250,000 85,000 155,800
Tentative Tax Base 579,806 $500,000 - $750,000 37% 79,806 29,528
$750,000 - $1,000,000 39% 0 0
Tentative Tax 185,328 $1,000,000 + 40% 0 0
Less: Unified Credit (185,328) TOTALS 579,806 185,328
Federal Estate Tax Liability -
3) The Gross Estate, Probate Estate, the Marital Deduction and the New Tax Basis to Heirs Calculations for Maria:
FMV Gross Marital Husband's
Property at DOD Title Probate Estate Deduction New Basis
Life Insurance -
Cash & Checking 19,350 JT - 9,675 9,675 9,675
Stock Portfolio 550,300 JT - 275,150 275,150 610,150 = $275150 + $670,000 x 50%
Bond Portfolio 500,322 JT - 0 250,161 250,161 500,161 = $250,161 + $500,000 x 50%
Primary Residence 950,000 W 950,000 950,000 950,000 950,000
Auto - Audi 35,000 W 35,000 35,000 35,000 35,000
Furniture & Personal Property 350,000 JT - 175,000 175,000 175,000
Gross Estate 2,404,972 985,000 1,694,986 1,694,986 2,279,986
4) The Adjusted Gross Estate, Tentative Tax Base and Federal Estate Tax Liability Calculations for Maria:
Gross Estate 1,694,986 Taxable Tax
Less: Administration (25,000) Tax Rate Schedule Rate Amount Liability
Less: Burial (15,000)
Less: Casualty - $0 - $10,000 18% 0 0
Less: Debts (448,887) = $15,871 Credit Card Debt + $433,016 Mortgage Primary Residence $10,000 - $20,000 20% 0 0
Adjusted Gross Estate 1,206,099 $20,000 - $40,000 22% 0 0
Less: Marital Deduction (1,206,099) $40,000 - $60,000 24% 0 0
Less: Charitable Deduction - $60,000 - $80,000 26% 0 0
Taxable Estate - $80,000 - $100,000 28% 0 0
Add: Adjusted Taxable Gifts $100,000 - $150,000 30% 0 0
Tentative Tax Base - $150,000 - $250,000 32% 0 0
$250,000 - $500,000 34% 0 0
Tentative Tax - $500,000 - $750,000 37% 0 0
Less: Unified Credit - $750,000 - $1,000,000 39% 0 0
Federal Estate Tax Liability - $1,000,000 + 40% 0 0
TOTALS 0 0