You work as a Financial Planning Adviser and have been asked to assist with two new...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
You work as a Financial Planning Adviser and have been asked to assist with two new clients. You have received background information on each client (see below). Client Name Age Status Dependents Occupation Net Income (after super and after tax) Expenses (living and financial) Major assets Major liabilities Major financial goals Ingrid 30 Single, owner of apartment Nil Helicopter Pilot AUD225,000 pa from salary AUD165,000 pa including the bank loan Cash at bank AUD10,000 Share portfolio AUD100,000 Superannuation AUD80,000 Apartment AUDO.7 million Bank loan for the apartment AUD350,000 (interest only loan) Purchase a second apartment as an investment within two years (price approx AUDO.8 million) with 20% cash and 80% bank loan Clare and Alan 52 and 51 Married, joint owners of house Two children (age 12 and 14) Manager of hospitality business (Clare) and High School teacher (Alan) AUD145,000 pa (Clare) and AUD115,000 pa (Alan) from salary AUD175,000 pa including the bank loan Cash at bank AUD25,000 Superannuation AUD650,000 House AUD1.1 million Bank loan for the house AUD525,000 (interest only loan) Operate a conservative budget until the children complete high school You have had an introductory meeting with each new client to obtain a better understanding of their circumstances, financial goals and risk preferences. Below are some notes from those meetings. Ingrid: - Is an experienced helicopter pilot that works for a company that provides emergency medical transport services. Typically, Ingrid works 12 hour shifts in accordance with a roster. Sometimes, when attending to an emergency call, Ingrid must work extended hours until the call is completed. These extended hours are paid in addition to her salary as overtime. In a typical year, the overtime equates to an additional payment of approximately 20% of salary. Ingrid lives in a two bedroom apartment and is planning to purchase a second apartment as an investment. Ingrid is relatively well paid and spends significant amounts of money on fashion, entertainment and overseas holidays. Ingrid has a good understanding of financial markets and is familiar with the concept of risk and return. - Both personally and financially, Ingrid is considered to not be a risk taker. Clare and Alan: - For Clare and Alan, family is their top priority and they manage their time to ensure that their family and work life are balanced. The children are settled and happy at a local state school. They are considering the purchase of a "tiny house" to be located on some unused space at the rear of their property. The tiny house would be rented for short term holiday accommodation, similar to a "bed and breakfast". Both Clare and Alan are well educated, financially literate and consider themselves to be risk takers - they assess each opportunity on its merits. But they would never place in jeopardy their family or their family wealth. (5 marks) Question 2.b Clare and Alan are undertaking a preliminary review of the possible purchase of the tiny house and how it might impact their family budget. Identify and discuss the key financial issues they need to investigate. For discussion purposes, assume that the cost to purchase and fully install the tiny house is estimated to be AUD 100,000 (the supplier has offered to arrange finance on reasonable terms) and net income (after allowance for expenses and tax) from short term rental is expected to be in the range AUD13,500 to AUD18,500 per year. The tiny house has a useful life of 10 years. The financial data above is for reference only. Detailed calculations are not required. The discussion should focus on the key financial issues at a conceptual level. (5 marks) You work as a Financial Planning Adviser and have been asked to assist with two new clients. You have received background information on each client (see below). Client Name Age Status Dependents Occupation Net Income (after super and after tax) Expenses (living and financial) Major assets Major liabilities Major financial goals Ingrid 30 Single, owner of apartment Nil Helicopter Pilot AUD225,000 pa from salary AUD165,000 pa including the bank loan Cash at bank AUD10,000 Share portfolio AUD100,000 Superannuation AUD80,000 Apartment AUDO.7 million Bank loan for the apartment AUD350,000 (interest only loan) Purchase a second apartment as an investment within two years (price approx AUDO.8 million) with 20% cash and 80% bank loan Clare and Alan 52 and 51 Married, joint owners of house Two children (age 12 and 14) Manager of hospitality business (Clare) and High School teacher (Alan) AUD145,000 pa (Clare) and AUD115,000 pa (Alan) from salary AUD175,000 pa including the bank loan Cash at bank AUD25,000 Superannuation AUD650,000 House AUD1.1 million Bank loan for the house AUD525,000 (interest only loan) Operate a conservative budget until the children complete high school You have had an introductory meeting with each new client to obtain a better understanding of their circumstances, financial goals and risk preferences. Below are some notes from those meetings. Ingrid: - Is an experienced helicopter pilot that works for a company that provides emergency medical transport services. Typically, Ingrid works 12 hour shifts in accordance with a roster. Sometimes, when attending to an emergency call, Ingrid must work extended hours until the call is completed. These extended hours are paid in addition to her salary as overtime. In a typical year, the overtime equates to an additional payment of approximately 20% of salary. Ingrid lives in a two bedroom apartment and is planning to purchase a second apartment as an investment. Ingrid is relatively well paid and spends significant amounts of money on fashion, entertainment and overseas holidays. Ingrid has a good understanding of financial markets and is familiar with the concept of risk and return. - Both personally and financially, Ingrid is considered to not be a risk taker. Clare and Alan: - For Clare and Alan, family is their top priority and they manage their time to ensure that their family and work life are balanced. The children are settled and happy at a local state school. They are considering the purchase of a "tiny house" to be located on some unused space at the rear of their property. The tiny house would be rented for short term holiday accommodation, similar to a "bed and breakfast". Both Clare and Alan are well educated, financially literate and consider themselves to be risk takers - they assess each opportunity on its merits. But they would never place in jeopardy their family or their family wealth. (5 marks) Question 2.b Clare and Alan are undertaking a preliminary review of the possible purchase of the tiny house and how it might impact their family budget. Identify and discuss the key financial issues they need to investigate. For discussion purposes, assume that the cost to purchase and fully install the tiny house is estimated to be AUD 100,000 (the supplier has offered to arrange finance on reasonable terms) and net income (after allowance for expenses and tax) from short term rental is expected to be in the range AUD13,500 to AUD18,500 per year. The tiny house has a useful life of 10 years. The financial data above is for reference only. Detailed calculations are not required. The discussion should focus on the key financial issues at a conceptual level. (5 marks)
Expert Answer:
Answer rating: 100% (QA)
Key financial issues that Clare and Alan need to investigate regarding the possible purchase of the tiny house include 1 Cash Flow Analysis Clare and ... View the full answer
Related Book For
Income Tax Fundamentals 2013
ISBN: 9781285586618
31st Edition
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill
Posted Date:
Students also viewed these finance questions
-
In your own construct an overview of the critical infrastructure Information Technology sector. Part 2. Examine at least three of the following: Unique aspects as they relate to national security....
-
You work as a Financial Planning Adviser and have been asked to assist with two new clients. You have received background information on each client (see below). Client Name Anna Judy and Stan Age 35...
-
Suppose you are given the following set of data with three Boolean input variables a, b, and c, and a single Boolean output variable K. a bc K 1 0 1 1 1 1 1 1 1 1 1 1 1 1 0 01 For parts (a) and (b),...
-
Brunt Corporation's new project calls for an investment of $10,000. It has an estimated life of 10 years. The IRR has been calculated to be 15 percent. If cash flows are evenly distributed and the...
-
Solve the following equations. 1.25 y 20.5 = 0.5 y 11.5
-
A negatively charged particle located at the origin of an \(x y z\) coordinate system is spinning clockwise about the \(x\) axis (that is, clockwise when you look at the particle while standing...
-
John Wills, Bates & Hill Fabricators' budget director, has received budget information from several managers (see Exercises 5-8, 9, 11, 15, 17, 19, 20, 23, and 25) and is preparing the company's cash...
-
The standard interface technology for wireless networks is _ _ _ _ _ _ _ _ _ _ . The hardware component necessary for computers to connect to these networks is a _ _ _ _ _ _ _ _ _ _ .
-
An engineer has performed an experiment to study the effect of four factors on the surface roughness of a machined part. The factors (and their levels) are A = tool angle (12, 15), B = cutting fluid...
-
Mr Omar Ali Al Abri is a successful sole trader of software & hardware equipment business in Ibri. He has recently hired an accountant to reconcile and prepare financial reports so that he can...
-
A stock just paid a dividend of D 0 = $ 2 . 2 5 . The required rate of return is rs = 1 1 . 4 % , and the constant growth rate is g = 4 . 0 % . What is the current stock price?
-
What is accounting? Describe each part of the accounting equation. How do accruals and deferrals affect financial statements? When are period costs expensed? When are product costs expensed? There...
-
For the simple pendulum shown in the figure, write the governing equation in s-domain. Assume small angles and linearize your model. Initial conditions are zero. Explain each step clearly. L, length...
-
In the code we have the ElectricPowerSwitch class with a field referencing LightBulb . We see specifics of the light bulb all through the ElectricPowerSwitch . Our switch can now turn on and off the...
-
1.Compare and contrast the aggressive and conservative short-term borrowing strategies. 2. During periods of normal credit market conditions, which short-term borrowing strategy will result in the...
-
The data in Table 1 shows the GDP per hour worked in five countries. This is a measure of labour productivity. Assume that in all the countries, the only factor of production that matters is labour...
-
What are the two components of a company's income tax provision? What does each component represent about a company's income tax provision?
-
If Charles, a 16-year-old child model, earns $50,000 a year and is completely self supporting even though he lives with his parents, can his parents claim him as a dependent? Why or why not?...
-
Your supervisor has asked you to research the following situation concerning Owen and Lisa Cordoncillo. Owen and Lisa are brother and sister. In May 2012, Owen and Lisa exchange business pickup...
-
Dr. Ivan I. Incisor and his wife Irene are married and file a joint return for 2012. Ivan's Social Security number is 477-34-4321 and he is 48 years old. Irene I. Incisor's Social Security number is...
-
Should other employees (cleaner/spotters, counter people) be put on a similar plan? Why or why not? If so, how exactly?
-
A store managers job is to keep total wages to no more than 30% of sales and to maintain the fuel bill and the supply bill at about 9% of sales each. Managers can also directly affect sales by...
-
Our own company now uses a point method to evaluate jobs for pay purposes, and each resulting job class also has a rate range associated with it. Sales associates are now paid a salary that is not...
Study smarter with the SolutionInn App