Part 1 (Total: 9 marks) Susan is 39 years old and works as a senior operations manager. Michael, 41, is an IT project manager. They have approached you to provide advice on their financial position, specifically in the creation of wealth over the long term. They have provided the following income and expense details: Susan's salary: $120,000 (plus SG) Michael's salary: $180,000 (plus SG) Michael's bonus: usually $50,000 p.a. Michael has an investment unit at Camperdown, in inner-city Sydney, valued at $650,000 (market value) with rental income of 3% net of associated management expenses. The unit is in Michael's name with an investment loan of $500,000 with interest-only repayments of 7.70% p.a. Their home is jointly owned and valued at $700,000. They repaid their mortgage last year and plan to spend $45,000 to renovate the kitchen and bathroom next year. They have an Australian share portfolio of $120,000 which is owned jointly. They estimate their living expenses to be approximately $80,000 p.a. Their combined annual cash flow would be constructed as follows: Year 1 ($) Year 2 ($) Income: Salaries 300,000 300,000 Bonus 50,000 50,000 Rental income 19,500 19,500 Dividend income 4,836 4,836 Total income 374,336 374,336 Expenses: Living expenses 80,000 80,000 Tax (incl. Medicare) 124,879 124,879 Loan repayments 38,500 38,500 Renovations 0 45,000 Total expenses 243,379 288,379 Net surplus 130,957 85,957 Susan and Michael's net worth, based on the information in the case study above, can be established as follows:BFA607 - Investment Planning 3 continued ... Assets Owner Value ($) Principal residence Joint 700,000 Investment assets: Australian shares Joint 120,000 Investment property Michael 650,000 Total assets 1,470,000 Liabilities Owner Interest rate p.a. Payment type Monthly payments Tax deductible Value ($) Investment loan Michael 7.70% Interest only $2567/ month Yes 500,000 Total liabilities 500,000 Total net worth 970,000 Required a) To visualise the client's net worth, develop a pie chart of the current asset allocation. This can be used as a basis for discussion about the client's risk tolerance and asset allocation requirements. In constructing this initial asset allocation pie chart, you must remember to: exclude all lifestyle assets exclude cash lump sums awaiting investment include existing savings and investment assets. Review the pie chart and list 4 issues that may exist with their current asset allocation. b) Discuss what recommendations you would make to the clients regarding their current asset allocation versus their goals and objectives. c) Your senior adviser has asked you to prepare cash flow projections for the clients. You believe that further information is required. List 6 questions around their lifestyle, goals and objectives that you would ask the clients before preparing the cashflow projections