Max Small has outstanding school loans that require a monthly

| June 2, 2016

Question
Max Small has outstanding school loans that require a monthly payment of $1,000. He needs to buy a new car for work and estimates that this purchase will add $350 per month to his existing monthly obligations. Max will have $3,000 available after meeting all his monthly living (operating) expenses. This amount could vary plus or minus 10%.

a. To assess the potential impact of the additional borrowing on his financial leverage, calculate the DFL in tabular form for both the current and proposed loan payments using Max’s available $3,000 as a base and a 10% change.
b. Can Max afford the additional loan payment?
c. Should Max take on the additional loan payment?

Please provide your own work. Thanks!

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