URGENT PLEAASEEE HELP!!!!

Question 2.a (5 marks) Kit and Jo are considering two possible alternatives sell their home and buy a larger house for AUD4.5 million, or, keep their home and build a major extension for AUD1.5 million. Funding for either alternative will involve increasing their existing home loan. Assess and compare the financial viability of these two alternatives (assume the bank loan is interest only with an interest rate of 5.0% per annum).

0. Kit and Jo:

   • - Kit and Jo have been together for nearly 15 years and have two young children. Kit is a partner at a major accounting firm and Jo is a senior biochemist at a pharmaceuticals company. They both work long hours and hire home help for cleaning and cooking.

   • - Family is their top priority and they work hard to ensure that their family and work life is balanced and comfortable. The children are settled and happy at a local state school.

   • - Kit and Jo are concerned that the family home is too small the children will need more space in the near future. They want to continue to live in the local area and have looked at several larger houses currently on the market.

   • - Kit and Jo haves a strong social conscience and both are involved as volunteers with a local charity that helps homeless people. A full time role at the charity has become available and Kit has been approached to take on the role. This would mean resigning from the accounting firm and a decrease in net income for Kit by about 50%. The new job would involve less work hours than at the accounting firm such that the home help would no longer be required.

   • - Both Kit and Jo 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.

Discuss the key financial issues that Kit and Jo should take into consideration in relation to the charity job offer to Kit and the potential impact on their housing plans.

Client Name Tom Kit and Jo Jim Age Status 45 and 42 Married, home owners 71 Widower (single), home owner 35 Single, renter of Studio apartment Nil Strategy Consultant AUD195,000 pa from salary Two children (age 8 and 9) Accountant and Biochemist AUD175,000 pa (Kit) and AUD130,000 pa (Jo) from salary Nil Retired Doctor 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 Major liabilities Home loan AUD1.2 million (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% bank loan Major financial goals Operate a conservative budget until the children complete high school in about 9 years time Continue self funded retirement and undertake one overseas holiday each year (approx cost AUD15,000 per holiday additional to normal expenses) Client Name Tom Kit and Jo Jim Age Status 45 and 42 Married, home owners 71 Widower (single), home owner 35 Single, renter of Studio apartment Nil Strategy Consultant AUD195,000 pa from salary Two children (age 8 and 9) Accountant and Biochemist AUD175,000 pa (Kit) and AUD130,000 pa (Jo) from salary Nil Retired Doctor 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 Major liabilities Home loan AUD1.2 million (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% bank loan Major financial goals Operate a conservative budget until the children complete high school in about 9 years time Continue self funded retirement and undertake one overseas holiday each year (approx cost AUD15,000 per holiday additional to normal expenses)