Question 2.b (5 marks)

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 AUD100,000 (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)