Raj and Nikita is a case study of living beyond your means. This case is worth 100 points toward your final grade and is due for submission in Week 5. I will be pointing out some things over the course of the next several weeks, but the case is for you to analyze and make recommendations to the family. I would sugges the following outline for your written case submission.How to Write a Case AnalysisRead a case at your normal speed without stopping to take notes. Read the assignment at the end of the case (if there is an assignment), and then carefully read the entire case again, taking notes in the margins as you read. Your task is to identify problems in the case, formulate recommendations to solve these problems, and then write your analysis with the following four headings:1. Summaryof the facts presented. 2. Analysisof the problems. 3. Recommendationsfor solutions to the problems. 4. Implications your recommendations will have on the operation of the organization.Follow the above format even if there are Assignment questions at the end of the case. Important: Weave the answers to the Assignment questions into your “Recommendations” section. As you write your case analysis, you must include appropriate references to the assigned reading. Your references should be in the following formats: For books and articles, (Brandenburger & Nalebuff, 1996. p. 126) and for Web articles and material, (www.charleswarner.us/articles/BUDGETS.html. September, 2004). The date in the Web reference is the month you accessed a Web site. Do not include a bibliography or references section at the end of your case analysis unless you refer to books or articles that are not Required or Recommended Reading.SummaryBegin your write-up with a concise synthesis of the facts in the case, under the heading “Summary.” Stick to one or two sentences and do not put any discussion of problems or recommendations for solutions in this section.AnalysisThe most important section of your case analysis comes next, under the heading “Analysis.” This section should be the longest, most thorough section of your write-up. Managers cannot solve problems unless they can first identify them. Recognizing problems and then understanding the nature of the problems is the proper beginning of all managerial action. Solutions generally fall in place relatively easily once problems are recognized and understood. There are often several viable solutions to problems in a case, but you cannot implement any of them if you cannot identify the problems. It is important that there are references to the assigned reading in the Analysis section. RecommendationsNext, write your recommendations on to how to solve the problems in a section titled “Recommendations.” Put the solutions in order of priority. It is vitally important that you include references to the assigned reading in the Recommendations section, too. If there are questions or assignments at the end of the case, weave your answers into the Recommendations section of the case. ImplicationsFinally, in your “Implications” section you should elaborate what implications your recommendations will have on the operation of the organization in the short and long term and what broader policy implications your recommendations might have not only on your organization but also on the business community, if there are any. In other words, if your recommendations are implemented, what changes will the organization and the business community in general have to make in the way they do things now and in the future? Include appropriate references in this section, too.Raj & Nikita Patel
Balance Sheet (Jan 1, 2014)
Cash Value of Term Life Insurance ($44,000 policy)
Total Current Assets
Total Retirement Savings
2010 Volvo S40
2009 BMW X3
Raj’s Cutom Golf Clubs
Total Tangible Assets
Credit Card 1 Balance (APR 16.0%)
Credit Card 2 Balance (APR 22.0%)
Pay Day Loan (APR 75.0%)
Furniture Store Loan (APR 22.0%): Original Value $2,200
Property Taxes Payable
Total Current Liabilities
Auto Loan – 2010 Volvo S40 (Original loan of $17,800 at 5.5%
APR for 5 years)
Auto Loan – 2009 BMW X3 (Original loan of $19,000 at 5.0%
APR for 5 years.)
Total Non-Current Liabilities
All loans have fixed interest rates (APR) and monthly payments.
All loan payments use an equal payment amortization schedule.
Raj Patel receives life insurance coverage equal to one year of his gross salary.
This policy is through his employer. Nikita is listed as the beneficiary.
Raj & Nikita Patel
Raj’s Gross Salary (3.0% annual increase)
Nikita’s Gross Salary (3.5% annual increase)
Income & Payroll Taxes Withheld
Raj – FICA
Nikita – FICA
Income Taxes Withheld (MFJ)
Total Payroll & Income Tax Withheld
Regular Saving & Investment
Raj’s 401(k) Contributions
Raj’s IRA Contributions
Nikita’s IRA Contributions
Total Regular Savings & Investment
Utilities (electric, water)
Cable and Internet
Auto loan payment (Nikita)
Auto loan payment (Raj)
Credit card payments (minimum payment $390/month)
Golf and Swim Club Dues
Swimming Lessons (Aziz): 6 months
Volin Lessons (Priya)
Auto Insurance Premiums
Renter’s Insurance Premiums
Vehicle Expenses (gas, maintenance, repairs)
Total Living Expenses
Discretionary money or (shortfall)
2014 Personal Finance Case Study
Your team focuses on providing comprehensive financial planning for your clients. Mr. and Ms. Patel heard
about your services from a neighbor, who stated that you are great at helping families think through various
options so that they can develop a plan that will help them reach their goals and make intelligent financial
choices along the way.
When you first met with the Patels, you learned the facts described below and were provided with both the
attached balance sheet and budget. Use this information to help the Patel family improve their financial
condition and reach their financial goals.
Raj and Nikita Patel are a married couple living in Harrisonburg, VA. Originally high-school
sweethearts, they are now a young, active and extremely healthy family with two children; their
daughter, Priya (age 7) is in second grade, and their son, Aziz (age 5) is in kindergarten. Raj (age
34) did not attend college after high school and works in manufacturing. Nikita (age 31) attended
community college and works as a receptionist at a local accounting firm.
Raj, and his family, had grown accustomed to him working 50 to 60 hours per week, but since the
recession his hours have been strictly limited to 40 per week so he cannot request over-time or
extra work shifts. Unfortunately, although his hours and subsequent income were reduced, the
family did not reduce their monthly expenses. To earn a little extra money during tax season,
Nikita has shown interest in becoming a Registered Tax Return Preparer but hasn’t discussed this
with her firm.
The Patels currently rent a three-level townhouse with a finished but unfurnished basement in a
well-to-do neighborhood in Harrisonburg and feel social pressure to compete with the lifestyles of
their more affluent neighbors. Many of their neighbors are members of the local golf and swim
club and encouraged the Patels to join as well. Raj recently bought a set of custom golf clubs so he
could golf and socialize with his neighbors, several of whom are avid players. Priya began taking
violin lessons last month as part of her music curriculum at school. Nikita purchased her a new,
expensive violin and used their credit card to finance the purchase. Aziz recently showed an
interest in swimming, so Nikita signed him up for lessons at the golf and swim club aquatic center.
The children’s activities coupled with Raj’s inconsistent work schedule means that the family
doesn’t have time to make a lot of meals (and neither parent enjoys cooking), so the family
frequently eats out at local restaurants.
After the two expensive purchases and other spending, the family has reached the credit limit on
one of their credit cards. In addition, the Patels replaced their living room sofa and chair with a
nice leather sectional when the local furniture store was having a sale last June. They opted to
finance the $2,000 purchase through the furniture store to take advantage of 24-month, zero
percent financing. Upon reading the financing agreement, the Patels realized that if they do not
pay off the entire balance within the 24-month period then interest will be charged at an annual
interest rate of 22% dating back to the original date of the loan contract. They have only paid a
small portion of the loan since the purchase.
One last financial issue is that due to a two-week shutdown in November at the manufacturing
plant where Raj works, the family had to take a payday advance loan to pay their car payments
during that month. While they haven’t had any trouble making the car payments since, they have
not been able to repay the payday loan and it has been collecting extra interest at a very high rate.
Raj and Nikita have realized that they need assistance getting their financial lives in order.
Therefore, they have provided a current balance sheet and an estimated budget of their
living expenses for 2014. These statements show the Patel family’s current financial situation
and how they manage their personal finances.
Financial Goals and Life Objectives:
1. Strengthen their overall financial security. The family needs to create an emergency fund
worth at least three months of their expenses and provide the family with adequate life
2. Reduce debt by paying off major liabilities.
3. Fund Raj and Nikita’s retirement accounts.
4. Establish an education fund for Aziz and Priya to attend college.
At a minimum your written plan should address the following:
䖃 The main strengths and weaknesses of the Patel’s current financial condition.
䖃 Suggest changes to the Patels’ lifestyle to pay-off high-interest liabilities and improve their
䖃 Recommend an education saving account and increased contributions to their retirement
Current Cash flow Information
Using the information given, you need to calculate the monthly and annual car payments for both
Nikita’s and Raj’s vehicles to compute the total living expenses and any remaining cash in the
Current Insurance Information
Coverage is provided through Nikita’s employer
Insured persons are Raj, Nikita, and their dependent children
Annual deductible is $750 per person with a maximum of $1,500 per year
Co-insurance after deductible is 20%
Annual stop-loss limit is 20% of the first $8,000 per person per year with a maximum of
$5,000 per year
䖃 Major medical coverage is unlimited
Split limit coverage: 50k/100k/25k
Collision deductible: $500
Comprehensive (other-than-collision) deductible is $500
Annual premium: $3,000
䖃 Short term policy
䖃 No elimination period
䖃 90 day benefit coverage
䖃 No long-term disability coverage is available through Raj’s employer
䖃 Nikita’s employer doesn’t provide any disability coverage
䖃 Note: If they think that a disability would be considered permanent and total, Raj or Nikita
would need to seek coverage under the Social Security Administration’s definition of
䖃 Term life policy with a value of $44,000 (one year of Raj’s salary) provided through Raj’s
䖃 Nikita’s employer does not provide her with any life insurance coverage.
HO-4 policy (Renter’s insurance)
$4,000 of personal property coverage (Coverage C)
30% of Coverage C limit
Annual premium: $155
Pay Day Loan
䖃 Pay day loans are used when people do not want to borrow money from friends and family
or their bank. The loans are short-term with very high interest rates. Initial loan = $600
䖃 The payment for this loan is $150 per month for 4 months. However, there is a monthly
service fee of $24. This increases the actual monthly payment to $174. This results in an
effective annual interest rate of nearly 75%.
Raj wants to retire at age 67, and Nikita wants to retire at age 65. The couple was originally from
Charlottesville, VA and would like to return there after they retire. After retirement, they aim to
replace 75% of their pre-retirement income to maintain a similar standard of living
(approximately $51,000 in today’s dollars). Because the family isn’t confident of the amount of
Social Security that will be available when they retire, no Social Security benefits are included in
their retirement planning and they would consider any such benefits an unexpected bonus.
The factory where Raj works offers a 401(k) contribution plan with employer matching. While he
used to be able to defer much more because of his overtime pay, Raj has currently elected to defer
2% of his salary annually into his 401(k). This equates to roughly $880 a year. His employer
matches 50% of Raj’s contributions, up to 5% of his total salary. In this case, the employer will
match 50% of Raj’s contributions, or 1%, as this is under the 5% limit. The total amount
contributed by both employer and employee is $1,320. He also has an IRA into which he used to
invest $100 a month, but after the recession he has not been able to continue adding to his
account. The account is currently invested in a no-load, S&P 500 index fund.
Nikita currently has a traditional rollover IRA, which she rolled-over 5 years ago when she left her
previous employer to give birth to Aziz, and is considering converting it into a Roth IRA. The
balance in her IRA account was rolled over from her previous employer’s plan. She has not made
any additional contributions to the IRA since she left that previous employer. The IRA is earning
1.5% at their local bank.
Neither Nikita nor Raj know the annual contribution limits for an IRA or a 401(k), and therefore
are unsure how to continue saving.
They do not currently have any estate planning documents in place.
Case study provided by students Daria Victorov, Brittany Clifton, Eric Siss and David Klepeisz, members of the
Student Financial Planning Association at Virginia Tech, under the guidance of Mr. Derek Klock and Dr. Ruth
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