FNCE2001 Personal Finance - Case Study Assignment

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Case study 1 (Total= 14 marks)

Tom and Lisa are a couple in their late-thirties and are looking for financial advice to improve their financial position. Lisa is a lawyer and earns a salary of $130,000 p.a. (before tax) while Tom works as a software engineer and earns $95,000 p.a. (before tax). Tom currently works part-time and take care of their two children, Emily, aged 4, and Ethan, aged 6.

The couple does not have any private health insurance.

The couple’s investments are shown as follows:

Item Market value Ownership
Savings account (interest rate of 3.5% p.a.) $ 55,000 Lisa
Real Estate Investment Property (rental income of $800/month) $350,000 Owned jointly
Platinum International managed fund (acquired in March 2018 for $80,000; funds distributed 2,000 this year in total which includes 500 fully franked dividends) $100,000 Lisa
Shares
■Tech stocks acquired 6 months ago for $50,000 $ 70,000 Lisa
■Mining stocks acquired in March 2019 for $50,000 (fully franked dividends of 5% p.a.) $ 80,000 Lisa

The couple is looking to sell the entire share portfolio in a couple of months to invest in higher-yield opportunity but are concerns about the tax implications. Lisa also has a carried-forward capital loss of $20,000 from 2 years ago. The couple is concerned by the large amount of tax they are currently paying and want to explore strategies to reduce their tax liability and improve their financial position.

The couple also incurred the following expenses during the year

Expenditure Tom Lisa
Work related expenses $900 $1,200
Travelling to and from home $600 $700
Professional Development $450 $1,000
Donations $200 $500
Living costs $19,000 $19,000
Tax agents’ fees $800 $1,000
Income protection insurance $180 $350

Questions

  • Determine the net tax payable for the current year (2022/2023) for both Tom and Lisa. (8 marks)
  • The couple is concerned with the amount of overall tax they are paying. Discuss some of the tax-effective strategies that the couple could use (at least 3 strategies should be discussed). (3 marks)
  • If the shares are sold, calculate the net assessable capital gain that would be included in Lisa’s assessable income for the year. (3 marks).

Case study 2 (Total= 8 marks)

John Anderson is considering the following investments: XYZ Corp, Alpha Inc, and Beta Ltd. John acquired the following financial:

Scenarios Probability (%) Return (%)
XYZ Alpha Beta
1 25 8 10 10
2 20 10 8 12
3 30 13 12 16
4 25 12 15 20

Questions

  • Calculate the expected return for each asset. (1.5 marks)
  • Calculate the expected return of the portfolio comprising each asset weighted as follows: (2 marks)

Asset                          Weighting (%)

XYZ                                   25

Alpha                                  15

Beta                                     60

  • Briefly explain to John the benefit of combining the assets into a portfolio instead of undertaking individual investments in XYZ, Alpha and Beta. (2 marks)
  • Calculate the risk attached to each of the investments proposed in XYZ, Alpha and Beta. Rank each investment regarding its risk and return and comment on the risk and return relationship. (2.5 marks)

Case study 3 (Total= 8 marks)

Sarah Mitchell is interested in investing in listed stocks on the ASX. She has chosen two stocks listed on the Australian Securities Exchange to research: DEF Energy Corporation (DEF) and UVW Technology Group (UVW). She has collected the following information from her research:

DEF Energy Corporation (DEF) UVW Technology Group (UVW)
Current share price $45.75 $50
Average return 7.8% 5%
EPS for the current year $6 $2.5
Expected earnings growth 9.2% 12.8%
Dividends declared $2.2/share $0.8/share
Beta 0.9 1.2
Average PE ratio for their respective industry 10 18

She has decided to invest only in one stock and is struggling to choose the best between DEF and UVW. Therefore, she seeks your advice. Provide your analysis and advice (you should reference all of the information you used for your analysis).

Case study 4 (Total= 5 marks)

Peter is hesitating about whether he should invest through LIC or ETF. As his financial adviser, you would explain 1) the difference between an ETF and a LIC; 2) what are the advantages and disadvantages of investing in LIC and ETF, respectively. (5 marks)

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