Part A – 1:. From Allison’s after-tax cash flows, she h

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Part A – 1:From Allison’s after-tax cash flows, she has to meet the expenses as provided. Cashflows remaining after meeting the various expenses will be the net cash flow for the month.ParticularsAmount ($)Amount ($)Cash Inflow after taxes3000Less: Cash Outflows attributable to the monthly expenses:1.Rent7502.Student loan payment2003.Utilities1504.Food3005.Recreation6006.Car expenses2007.Clothing150Total Cash Outflows(2350)Net Cash Flow for the month650Thus, Allison’s net cash flows for the month, after meeting her monthly expenses from herafter-tax cash inflows, come to $650.Part A – 2:Judy has a $1,000 deficit given that her cash outflows ($4,000) exceed her cashinflows ($3,000).To meet the shortfall, she could either use a credit card or borrow the necessaryamount. This would lead to an increase in her liabilities. For instance, if she were to use acredit card for her payments, the credit card company would pay on her behalf to the
merchant / seller / supplier at the time of the transaction but eventually Judy would owe thatamount to the credit card company when the amount as reflecting in the credit card statementis due for payment. Or, if Judy were to borrow the amount to meet her expenses fromsomeone, that person would eventually require repayment of the borrowed amount. Thus,using a credit card or borrowing the amount would eventually lead to an increase in Judy’sliabilities.Alternatively, she could do extra work to make more money, which would increaseher assets (i.e. cash). In this instance, Judy would have to part with her free time and effortsto do the extra work but in return she would be able to increase her cash / bank balance ongetting paid for the same.Besides, she could even liquidate any investment to raise cash, in which case hereinvestment assets would decrease and her liquid assets would increase, both by the sameamounts, thereby having on overall impact on the total assets.Part B – 1:Credit card may affect the personal budget in terms of added interest expenses on thedue amount if the due amount were to be not paid by the due date. Besides, if not controlled,expenses done by charging to the credit card may increase enormously and may defeat thepurpose of having a personal budget because a personal budget is done to not just get aclearer picture of where the cash comes from and goes for but to also afford an opportunityfor exercising better control of available funds. Thus, credit cards, if not used prudently,could end up getting an additional item of expense (i.e. interest expense on credit cardamount due) added to the cash outflows listed in the personal budget.Part B – 2:
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