Tom: - Is an experienced management consultant and is employed by one of the largest consulting firms in Asia Pacific. Tom recently returned to Australia following a three year role in Singapore. - Tom works long hours and most weekends. Tom is a keen surfer and this interest was a significant factor in his decision to return to Sydney. - Tom lives in a studio apartment (provided by his employer rent free for two years) but would like to purchase an apartment located near the beach before the rent free period expires. - Tom has a good understanding of financial markets and is familiar with risk and return. - Both personally and financially, Tom is considered to be a risk taker.

Tom wants to purchase an apartment within two years (refer Case Study). Undertake a financial assessment of this objective and comment on whether or not it is achievable.

In your response address two issues:

- the financial capacity to undertake the necessary savings plan for two years for the deposit; and,

- the financial capacity to service the bank loan (interest and principal)

The interest on the deposit savings account is 1%. The interest on the bank loan is 5% with monthly repayments and a term of 20 years.

Client Name Tom Kit and Jo Jim 35 45 and 42 71 Age Status Married, home owners Widower (single), home owner Single, renter of Studio apartment Nil Strategy Consultant AUD195,000 pa from salary Nil Retired Doctor Two children (age 8 and 9) Accountant and Biochemist AUD175,000 pa (Kit) and AUD130,000 pa (Jo) from salary AUD85,000 pa total from retirement fund and investment portfolio Dependents Occupation Net Income (after super and after tax) Expenses (living and financial) Major assets AUD85,000 pa AUD55,000 pa AUD175,000 pa including the home loan Cash at bank AUD115,000 Superannuation AUD220,000 Cash at bank AUD45,000 Superannuation AUD250,000 Home AUD1.8 million Car AUD25,000 Cash at bank AUD30,000 Superannuation AUD1.8 million Home AUD1.5 million Investment portfolio AUD250,000 Car AUD50,000 Nil Home loan AUD1.2 million Major liabilities (interest only loan) Capital Gains Tax liability from recent sale of investment property AUD35,000 (due for payment within one month) Purchase an apartment within two years (price approx AUD1.3 million) with 15% cash and 85% Continue self funded retirement and Major financial goals Operate a conservative budget until the children complete high school in about 9 years time undertake one overseas holiday each year (approx cost AUD15,000 per holiday additional to normal expenses) bank loan Client Name Tom Kit and Jo Jim 35 45 and 42 71 Age Status Married, home owners Widower (single), home owner Single, renter of Studio apartment Nil Strategy Consultant AUD195,000 pa from salary Nil Retired Doctor Two children (age 8 and 9) Accountant and Biochemist AUD175,000 pa (Kit) and AUD130,000 pa (Jo) from salary AUD85,000 pa total from retirement fund and investment portfolio Dependents Occupation Net Income (after super and after tax) Expenses (living and financial) Major assets AUD85,000 pa AUD55,000 pa AUD175,000 pa including the home loan Cash at bank AUD115,000 Superannuation AUD220,000 Cash at bank AUD45,000 Superannuation AUD250,000 Home AUD1.8 million Car AUD25,000 Cash at bank AUD30,000 Superannuation AUD1.8 million Home AUD1.5 million Investment portfolio AUD250,000 Car AUD50,000 Nil Home loan AUD1.2 million Major liabilities (interest only loan) Capital Gains Tax liability from recent sale of investment property AUD35,000 (due for payment within one month) Purchase an apartment within two years (price approx AUD1.3 million) with 15% cash and 85% Continue self funded retirement and Major financial goals Operate a conservative budget until the children complete high school in about 9 years time undertake one overseas holiday each year (approx cost AUD15,000 per holiday additional to normal expenses) bank loan