Using the given information make an estimate of the amount of insurance to be carried using the 'Needs Approach' & the Capital Retention Approach." Suppose a pretax interest rate of 6 percent, a tax rate of 30percent, no inflation and that Mr. Greenleaf's earnings will remain constant.
Current cash needs:

Final expenses

$15,000

Emergency Fund

$20,000

Mortgage Fund

$207,000

Notes and Loans Payable

$42,500

Educational Expenses (NPV)*

Charles (age 18) $


Tiffany (age 14) $


Mark (age 8) $


Total Educational Expenses
The college expenses are estimated at 20,000dollar a year for four years for each child. The easiest way to estimate the present value of this total of 240,000 dollar is to compute the present value of $20,000 payable over the four years for Charles, age 18 this will be the amount that he needs now. Then discount a similar sum an additional four years for Tiffany, age 14, and an additional ten years for Mark, age 8.
Total Current Cash Needs:

$

$

Plus Capital Needs:

Needs Approach

Capital Retention

For Spouses income:



(Use 60% of joint income)



$9200 monthly for 42.5 years



(Her life expectancy is 84.5)



After Tax interest Rate___%



Use a 30% Tax Rate

$

$

Less: The Present Value

Wife's wages of $3,917



Monthly to age 66



(Use the after tax interest rate



Social Security Payments



Survivor's benefits to Mark's age 18.



$1600 monthly

$

$

(Use the pretax interest rate)



Retirement income at Wife's age 66



$650

$

$

(Use the after tax interest rate)



Wife employer pension



$1300 monthly at age 66



(Use after tax interest rate)



Total Capital requirements

$

$

Total Capital Requirements

$

$

And Current cash needs



Total



Less Capital Assets



Life Insurance

$210,000


Cash

$15,000


Investments

$134,000


Other

$61,000


Total

$420,000

$420,000

Surplus or (Deficit)

$

$
