Assignment Requirements

Case Study

Keith has his own handy man business, which he runs from home, and grosses $65,000 after all business expenses. His wife, Wendy, works in media grossing $265,000 p.a. after SG. Wendy expects to receive a bonus of $23,000 next week. She intends to put it into her superannuation.

It is Keith’s second marriage and there are no children from the previous marriage.

They are paying off a mortgage of $1,550,000 on their own home which is now worth $2,050,000. The mortgage costs them $6,978 per month at a rate of 7.75% over 20 years. It is a standard principal and interest loan. They have owned the home for 2 years.

They have three children a 16 year old, 14 year old and a 11 year old. They all go to private schools at a total cost of $65,000 p.a. Payable at the beginning of each term. There 4 terms in the year.

Keith has a Self Managed Superfund with $65,000 in cash. He contributes $13,000 p.a. as concessional contributions.

Wendy has $175,000 in superannuation which is invested in a Capital Guaranteed Fund. She also salary sacrifices an additional $10,000 p.a.

They have a joint savings account with $20,000 for emergencies.

Keith has a bank deposit for $10,000 in case he needs cash for the business.

Wendy has a share portfolio, now valued at $47,500, which she inherited from her father three years ago. At the time of the inheritance the shares were valued at $42,600.

Keith owns a listed debenture with a FV of $35,000 and a coupon of 8.5% paid quarterly and with 24 months to maturity. It is currently trading at a yield of 6.75%.

There are two car loans;

Wendy’s car – 2 years into a 5 year loan at 8.5%, with $56,335 outstanding & costing $1,754 per month,
Keith’s work utility – 2 years into a 3 year loan at 8.40% with $21,442 outstanding and costing $1,901 per month. There is an early break fee of $500.

Wendy also owes $15,000 to her parents who are now having some financial difficulty due to heavy medical bills.

Their credit card has an outstanding amount of $35,965 and they make the minimum payment of 3.5%.

They are in a private health fund which costs $312 per month.

They try to keep their living expenses, around $2,500 per month, as low as possible but it is difficult with all the extra costs for sport etc for the children.

They are concerned that although they feel they should be doing better the credit card keeps getting worse each month and that schools fees are due for next term and they do not know where the money will come from.

Wendy’s younger step brother (18) lives with them but does not contribute to the household expenses. He is an apprentice earning $17,500 per annum.

Keith’s father is quite ill and it is expected he will be incapacitated and hospitalized within the next 12 months. His mother has asked Keith to be executor of their wills. Both Keith and Wendy have wills executed prior to their marriage.

FYI
Taxable income Tax on this income
$0 – $18,200 Nil
$18,201– $37,000 19c for each $1 over $18,200
$37,001 – $80,000 $3,572 plus 32.5c for each $1 over $37,000
$80,001 – $180,000 $17,547 plus 37c for each $1 over $80,000
$180,001 and over $54,547 plus 45c for every $1 over $180,000

Case Study Answer Outline

Outline the first things they should do.
Describe their current financial situation.
Look at ALL the aspects of their finances.
Look at their overall situation.
List the actions they can take to improve their position.

o What actions

o Why those actions.

o Effect of those actions.

Include any assumptions you make.
Describe their situation after the suggested actions.
The current interest rate in Australia is 2.5% p.a.

Do

Use bullet points. (Like this outline)
Remember, look at their overall situation.
Keep within the word limit. 2000 words
Include your assumptions.
Remember there is no need for referencing.

Do Not:

Include any tables, graphs or charts. You will be marked down.
Include any calculations, just include the result.
Exceed the word limit. Anything past the limit will be ignored.

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