Sharon Woodman

• 50 years old.
• Divorced with one daughter, Amber (age 30), and a grandson, Oscar (age 2).

Gary Eastland

• 45 years old.
• Married to Stella, a stay-at-home mom.
• Gary and Stella have two children, Mark, age 11, and Sandy, age 8.

Margaret Eastland

• 74 years old.
• Margaret’s home is worth $120,000 and is paid for. She receives a modest pension benefit of $12,000 per year from her late husband’s employer. She also receives Social Security benefits of $15,000 per year. Her most significant source of income has been CDs and government bonds. With the decline in interest rates, her discretionary income has decreased significantly, and she is concerned about having sufficient funds to take care of herself. Her 20% interest in the business is her single largest investment.

Woodland Architectural

• Sharon, Gary, and Margaret own Woodland Architectural, a C corporation. Sharon and Gary each own 40% of the stock, while Margaret owns the remaining 20%. Sharon and Gary formed the company 15 years ago with their funds and a capital contribution from Margaret.
• Woodland drafts architectural plans for several different venues, including small office complexes, small to medium retail centers, and small resorts. Sharon and Gary both believe the business has significant growth potential. The firm has been approached for other projects, such as a local government office complex and an upscale retail center.
• Today Woodland employs a total of 15 people—Sharon, Gary, seven architects, and six administrative office personnel. The firm grossed $3 million last year and had a profit of $700,000. Sharon and Gary have not had the firm appraised, but believe a reasonable value is $4.5 million. The firm does not pay any dividends. Margaret has indicated to both Sharon and Gary she would like to start receiving income from the business or sell her stock to Sharon or Gary.
• Sharon and Gary each receive a base salary of $250,000 per year. The other seven architects receive salaries ranging from $75,000 to $175,000. Salaries for the remaining office personnel range between $18,000 and $50,000.
• Sharon and Gary are interested in providing additional benefits that would help them retain their current employees and attract the additional talent they need to remain competitive. They are also interested in creating a market for their stock. Neither Sharon nor Gary is particularly interested in acquiring a bigger stake in the firm, but they do not want to see stock sold to individuals outside the firm. Sharon’s daughter has no interest in the firm.

Economic Information

• Sharon expects inflation to average 3.5% annually, both currently and for the long term.
• She expects her salary to increase 10.0% annually.
• Interest rates are very low and expected to rise in the near future.
• Slow growth economy; stocks are expected to grow at 9.5% annually.

Income Tax Information

• Her marginal income tax rate is currently 35% for federal income taxes. The state income tax rate is a flat 5%.

Retirement Information

• Sharon plans to retire in five years at the age of 55. She would like to have a standard of living equal to 80% of her preretirement income. She expects to be in retirement for 35 years.
• The company implemented a profit-sharing plan several years ago. Last year, the company contributed 15% of each eligible employee’s salary to the plan. The plan incorporates a five-year cliff vesting schedule, and employees are eligible to participate after completing one year of service. The plan offers loan provisions, subject to Internal Revenue Code limits. Sharon’s account has a current balance of $350,000.
• Sharon expects to collect $13,500 in Social Security benefits at her normal retirement age. She has been considering the possibility of receiving her Social Security benefits at age 62.

Investment Information

• Sharon is willing to take reasonable investment risk if appropriate, but she does not want to invest aggressively.
• She is interested in investing in more equity securities. A broker recently told her that ABC Manufacturing Company stock would be a wise purchase. The stock is currently trading at $45 per share and pays a dividend of $2 per share, with an estimated 4% growth rate of the dividend. The stock has a beta of 1.04.

Health Insurance

• Sharon is covered by the company’s health plan, which is an indemnity plan with a $1,000 deductible per person per year and an 80/20 major medical coinsurance clause.

Long-Term Disability Insurance

• Sharon is covered by an “own occupation” policy with premiums paid by the company. The benefits equal 60% of gross pay after a 180-day elimination period. The policy covers both sickness and accidents.

Divorce Information

• Sharon and her ex-husband, Howard, were divorced two years ago due to irreconcilable differences. Howard works in the marketing department of a Fortune 500 company, and his salary is $75,000 per year. Pursuant to the divorce arrangement, Sharon is required to pay Howard alimony in the amount of $45,000 each year for the next seven years. If Sharon dies during the next seven years, payments must be made from her estate.
• Sharon and Howard purchased a house several years ago for $280,000. They owned the house together as joint tenants with right of survivorship (JTWROS) until the divorce. Per the divorce agreement, the house was titled in Howard’s name only. The value of the house at the time of divorce was $350,000, and the value of the house today is $375,000.
• Sharon was also required to transfer her $800,000 whole life insurance policy to Howard pursuant to the divorce agreement. The cash value of the policy is currently $40,000, and the divorce agreement requires Sharon to pay the annual $10,000 premium.

Gifts, Estates, Trusts, and Will Information

• Sharon has not given any taxable gifts.
• Sharon’s will leaves everything to her ex-husband, Howard. She has not updated the will since the divorce.

Sharon’s Personal and Financial Goals

• Leave the company within five years, while maintaining her desired level of income and lifestyle.
• Establish an exit strategy for the business.
• Ensure her mother, Margaret, has adequate income, possibly through the acquisition of the mother’s stock in the company.
• Evaluate both investment and insurance risk.
• Spend $50,000 on the purchase of new bedroom and living room furniture for her home.

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