document.write( "<A HREF=/cgi-bin/jump-to-question.mpl?question=970585>Question 970585</A>: <I><SPAN STYLE=\"word-break: break-all;\"> Craig and Susan Miller had just returned from their honeymoon trip in the Whitsundays. They<BR>\n" );
document.write( "celebrated their wedding and the successful completion of Susan's MBA degree. Craig is 30 and Susan<BR>\n" );
document.write( "is 29 years old. Since the day they tied the knot, Craig's parents have been encouraging the couple to<BR>\n" );
document.write( "establish some personal financial goals for their future. The couple is eager to own their own home<BR>\n" );
document.write( "and have children in the next 3 years. They intend to seek professional financial advice from a<BR>\n" );
document.write( "registered financial planner.<BR>\n" );
document.write( "Craig works as a senior electrical engineer for a local manufacturing company and earns a pre-tax<BR>\n" );
document.write( "salary of $180,000 per year. Susan is currently employed on a part-time basis as a computer technician<BR>\n" );
document.write( "and earns a yearly gross salary of $40,000. In the near future, she intends to pursue a full-time career<BR>\n" );
document.write( "as a business manager for a computing firm until their first child arrives. They plan to have two<BR>\n" );
document.write( "children with two years apart between them. If she takes up the new career, her gross salary would<BR>\n" );
document.write( "increase to $75,000 per year. During your first meeting with them, Craig was quick to point out that he<BR>\n" );
document.write( "dislikes financial surprises while Susan indicates that she is willing to take some risk if the investment<BR>\n" );
document.write( "returns are worthwhile. Both of them do not spend a great deal of time tracking and understanding<BR>\n" );
document.write( "their finances.<BR>\n" );
document.write( "Currently, they live in a rented apartment in the eastern suburb of Sydney. They pay a monthly rental<BR>\n" );
document.write( "of $4,500 for the 3 bedroom apartment. They are hoping to own their own property in three years<BR>\n" );
document.write( "before their first baby arrives. Craig has set aside a small fund for their new home. The money is<BR>\n" );
document.write( "invested in a portfolio of blue-chip shares which provide consistent dividends for the last 5 years. The<BR>\n" );
document.write( "current market value of the fund is approximately $60,000.<BR>\n" );
document.write( "Craig has a savings account balance of $35,000 that earns an annual interest of 5 per cent. He has<BR>\n" );
document.write( "received a $2,500 dividend cheque with associated imputation credits of $500. Last week, he received<BR>\n" );
document.write( "a lottery winning of $15,000 and an unexpected end-of financial-year bonus to the value of $7,000.<BR>\n" );
document.write( "Susan has a cheque account at a local bank. The account has a balance of $4,000 and the bank requires<BR>\n" );
document.write( "all customers to keep a minimum amount of $2,000 to earn an annual interest of 1.5 per cent. Craig<BR>\n" );
document.write( "and Susan are concerned about the amount of personal income tax and medical levy withheld from<BR>\n" );
document.write( "them. They are not entirely convinced that the tax calculations are correct. In their regular weekend<BR>\n" );
document.write( "shopping, credit cards are often used. Their combined monthly balance always seems to hover around<BR>\n" );
document.write( "$3,500 at all times. They use their card to draw cash from the ATMs to cover their daily household<BR>\n" );
document.write( "expenses even though they carry about $300 in cash between them.<BR>\n" );
document.write( "Although the first child is not expected until three years later, the Millers are anxious about their<BR>\n" );
document.write( "children's tertiary education cost. Susan thinks that they should start thinking about education funding<BR>\n" );
document.write( "today. To encourage their children to take up tertiary education in the future, Craig and Susan are<BR>\n" );
document.write( "happy to provide for their education. The tertiary program will take 3 years to complete and the<BR>\n" );
document.write( "estimated individual tuition fee is $50,000 per year when the children start to attend university. Other<BR>\n" );
document.write( "related expenses would cost another $20,000 per year.<BR>\n" );
document.write( "The Millers believe they should save and be self-sufficient during retirement but they have yet to<BR>\n" );
document.write( "establish a retirement plan. Susan has accumulated $35,000 in her superannuation account while Craig<BR>\n" );
document.write( "has $145,000 in his account and has not named the beneficiary. The estimated combined yearly<BR>\n" );
document.write( "expenses are as follow:<BR>\n" );
document.write( "Other expenses (per annum):<BR>\n" );
document.write( "Charles Sturt University Subject Outline<BR>\n" );
document.write( "FIN560 201530 SM I-6 February 2015-Version 1 Page of 25 34<BR>\n" );
document.write( "Utilities $5,000<BR>\n" );
document.write( "Car usage and maintenance $30,000<BR>\n" );
document.write( "Food and groceries $10,000.00<BR>\n" );
document.write( "Entertainment $8,500<BR>\n" );
document.write( "Miscellaneous $5,000<BR>\n" );
document.write( "The following information is also available:<BR>\n" );
document.write( "• Superannuation dividend payments are approximately 5% indefinitely. In general, an increment of<BR>\n" );
document.write( "3% in salary is expected every year.<BR>\n" );
document.write( "• The long-term return for equity investment is projected to be around 15% per year, whereas bond<BR>\n" );
document.write( "funds are expected to offer yield of 6% per annum. Investment in term deposits will generate average<BR>\n" );
document.write( "return of 5% per annum over the next 30 years. Return from low risk managed fund is approximately<BR>\n" );
document.write( "7% per year.<BR>\n" );
document.write( "• The life expectancy for Craig and Susan are 77 and 85 years old respectively. The children are<BR>\n" );
document.write( "expected to be dependent on their parents until they turn 24 years old.<BR>\n" );
document.write( "• Craig and Susan are Australian residents.<BR>\n" );
document.write( "• For calculation of taxable income, use the relevant tax rates provided by the Australian Taxation<BR>\n" );
document.write( "Office (ATO).<BR>\n" );
document.write( "• Craig has tallied his work-related expenses for the year to be $5,500, which includes $2,000 for<BR>\n" );
document.write( "return bus fare from home to work during the year. He has also donated $600 to CARE Australia.<BR>\n" );
document.write( "Susan has work-related expenses of $1,500, tax deductible gifts totalling $800 and paid $200 for tax<BR>\n" );
document.write( "return preparation.<BR>\n" );
document.write( "• They do not receive fringe benefit from their employers.<BR>\n" );
document.write( "• Both Craig and Susan provide approximately 9% superannuation contributions via salary sacrifice<BR>\n" );
document.write( "and their respective employers provide another 9.5% contribution into their superannuation funds.<BR>\n" );
document.write( "• For the use of credit cards, interest charged for unpaid balance is approximately 24% per annum.<BR>\n" );
document.write( "• All debts will be amortised over the period of the loan. Mortgage repayments are made at the end of<BR>\n" );
document.write( "each month.<BR>\n" );
document.write( "Required<BR>\n" );
document.write( "Question 1 - 10 marks<BR>\n" );
document.write( "Help the Millers identify their short-term and long term financial goals.<BR>\n" );
document.write( "Question 2 - 15 marks<BR>\n" );
document.write( "i. Based on the information available to you, construct an income and expense schedule for the<BR>\n" );
document.write( "Millers.<BR>\n" );
document.write( "ii. Create a net worth statement for the Millers. Comment on whether they have a negative or positive<BR>\n" );
document.write( "net worth.<BR>\n" );
document.write( "iii. Using information from the above, calculate the following ratios (make sure you make a brief<BR>\n" );
document.write( "comment on each ratio).<BR>\n" );
document.write( "a. Savings ratio<BR>\n" );
document.write( "b. Liquidity ratio<BR>\n" );
document.write( "c. Solvency ratio<BR>\n" );
document.write( "d. Monthly debt service ratio<BR>\n" );
document.write( "For the ratios, use the definitions provided by Taylor and Juchau (2013). Show details of your<BR>\n" );
document.write( "calculations.<BR>\n" );
document.write( "Question 3 - 10 marks<BR>\n" );
document.write( "Assuming 3 years from now, the couple decides to purchase their own property. The estimated<BR>\n" );
document.write( "purchase price is $900,000. They are able to obtain a 30 year home loan with 95% financing from the<BR>\n" );
document.write( "bank. The home loan has a fixed rate of 7% p.a. for the entire period of the loan.<BR>\n" );
document.write( "i. How much do they have to pay the bank every year?<BR>\n" );
document.write( "ii. How much do they still owe the bank when the first child goes to university?<BR>\n" );
document.write( "(Prepare a full amortisation table for their mortgage and assume the first child attends university at the<BR>\n" );
document.write( "age of 18).<BR>\n" );
document.write( "Question 4 - 10 marks<BR>\n" );
document.write( "The Millers plan to retire in 30 years, and that they expect to live up to their life expectancy. They<BR>\n" );
document.write( "want their first retirement payment to be $150,000 per year ($75,000 each) and all subsequent<BR>\n" );
document.write( "Charles Sturt University Subject Outline<BR>\n" );
document.write( "FIN560 201530 SM I-6 February 2015-Version 1 Page of 26 34<BR>\n" );
document.write( "retirement payments are estimated to be equal to the first payment. The retirement payments will begin<BR>\n" );
document.write( "the day they retire, 30 years from now.<BR>\n" );
document.write( "i. How much do they need to save during each of the next 30 years (equal amounts being made at the<BR>\n" );
document.write( "end of each year) to meet their retirement goal?<BR>\n" );
document.write( "ii. How much do they need to put aside each year if they outlive their life expectancy (assume the<BR>\n" );
document.write( "yearly retirement incomes will be needed in perpetuity).<BR>\n" );
document.write( "Annual compounding applies in this question. Use a discount rate of 5% p.a. in your calculations and<BR>\n" );
document.write( "consider the effect of inflation in your analysis. </SPAN>\n" );
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