Question 3 (35 marks) Mike is a new grad with big dreams. He is 32 years old and just graduated from his MBA. He is under a lot of pressure from his family and his girlfriend he doesn't want to be trapped working the corporate life style although it offers stability through a steady pay cheque He has 3 primary goals, i) get married in 2 years or his girlfriend will kill him, and i) retire by age 40 with an income of $250,000 per year, and lastly ii) build a real estate empire which will provide him with a net worth of $100M by age 60 For the wedding he budgets he will need $60,000. He doesn't believe this will be a problem but this may be a minor setback. His incorporated financial planning business earns $180,000 gross every year, netting $150,000 into his corporate bank account yearly. He draws a salary to cover their expenses as they need it. Paul's girlfriend has a salary of $65,000 annually ($52,000 net). $5000/month They have total expenses of He currently owns nothing and has a student debt of $80,000. average investment return of 10%. He is a high risk taker and expects an The minimum private loan he Assume that private loans pay 14% interest yearly, and 2.5% lenders fee. can participate in is $50,000 Assume that real estate appreciates 10% per year. Assume that for every $500,000 in purchase price, mortgage the monthly mortgage is $1250. Assume that total expenses (not including mortgage) for any rental property is 30% of gross rents. Assume that the monthly gross rent per room is $700 Assume that for every $500,000 purchase price, the investment property will have 5 rooms. Assume that the minimum purchase price is $500,000. Assume that the minimum down payment is 35% The average business he can buy generates $10,000 of free cash flow monthly for every $1,000,000 of gross revenue. Most of the businesses he has come across generate $5,000,000 of gross revenue yearly, and have an asking price of $4,500,000 Put together a financial plan to get him to where he needs to go Page 5 of 6 Question 3 (35 marks) Mike is a new grad with big dreams. He is 32 years old and just graduated from his MBA. He is under a lot of pressure from his family and his girlfriend he doesn't want to be trapped working the corporate life style although it offers stability through a steady pay cheque He has 3 primary goals, i) get married in 2 years or his girlfriend will kill him, and i) retire by age 40 with an income of $250,000 per year, and lastly ii) build a real estate empire which will provide him with a net worth of $100M by age 60 For the wedding he budgets he will need $60,000. He doesn't believe this will be a problem but this may be a minor setback. His incorporated financial planning business earns $180,000 gross every year, netting $150,000 into his corporate bank account yearly. He draws a salary to cover their expenses as they need it. Paul's girlfriend has a salary of $65,000 annually ($52,000 net). $5000/month They have total expenses of He currently owns nothing and has a student debt of $80,000. average investment return of 10%. He is a high risk taker and expects an The minimum private loan he Assume that private loans pay 14% interest yearly, and 2.5% lenders fee. can participate in is $50,000 Assume that real estate appreciates 10% per year. Assume that for every $500,000 in purchase price, mortgage the monthly mortgage is $1250. Assume that total expenses (not including mortgage) for any rental property is 30% of gross rents. Assume that the monthly gross rent per room is $700 Assume that for every $500,000 purchase price, the investment property will have 5 rooms. Assume that the minimum purchase price is $500,000. Assume that the minimum down payment is 35% The average business he can buy generates $10,000 of free cash flow monthly for every $1,000,000 of gross revenue. Most of the businesses he has come across generate $5,000,000 of gross revenue yearly, and have an asking price of $4,500,000 Put together a financial plan to get him to where he needs to go Page 5 of 6
