Question

Renée is a 28-year-old occupational therapist living in the Annex district of Toronto. She recently graduated from the University of Toronto and now works as an independent contractor assessing the legitimacy of claims made by car accident victims. Like many students, Renée accumulated a large student debt during her years at university and plans to pay it off within the next five years.

Cash Flow Statement For the Year Just Ended
Income
Professional billings	$	61,005
Less: Professional expenses and taxes		(25,290	)
Professional income net of expenses and taxes				$	35,715
Dividends (after taxes)					270
Total Income				$	35,985
Fixed Expenses
Rent					11,000
Student loan payments					4,300
Total Fixed Expenses				$	15,300
Variable Expenses
Utilities, personal, food, clothing, and dental				$	14,185
Moving expenses					365
Credit card interest					1,150
Recreation/entertainment					2,030
Vacations					6,340
Total Variable Expenses				$	24,070
Total Expenses				$	39,370
Surplus/(Deficit)				($	3,385	)

Personal Balance Sheet as of Today
Assets
Liquid Assets
Bank account	$	1,680
Personal Possessions	$	11,680
Investment Assets
BCE Shares	$	4,425
Total Assets	$	17,785
Liabilities
Current Liabilities
Credit card balances	$	9,255
Long-Term Liabilities
Student loan		21,980
Total Liabilities	$	31,235
Net Worth	($	13,450	)

Using Renée’s financial statements, compute the following ratios: (Do not round intermediate calculations. Round your final answers to 2 decimal places.)

Debt to Asset ratio
Current ratio
Liquidity ratio		months

Answer 1

(a)-Debt to Asset ratio

Debt to Asset ratio = Total Liabilities / Total Assets

= $31,235 / $17,785

= 1.76

(b)-Current ratio

Current ratio = Total current assets / Total current liabilities

= Bank account / Credit card balances

= $1,680 / $9,255

= 0.18

(c)-Liquidity ratio

Liquidity ratio = Total liquid assets / Expenses per month

= Bank account / [Total expenses / 12 Months]

= $1,680 / [$39,370 / 12 Months]

= $1,680 / $3,280.83 per month

= 0.51 Months