Alex Case Study - Investment Property in the VIC - Accounting Assignment Help

Assignment Task:

Background

The year is 2020, and Alex is now at the age of 25. His parents own an investment property (without debts) in the VIC. Assume the property is a median-size house-with-land property, valued the same as your assigned suburb in Assignment 1. Due to the unexpected COVID-19, Alex started to think that the human life is so fragile, and he wanted to enjoy every moment of today. With that thought, he was exploring the possibility that "living without having to work."

Task 1

Currently, Alex is staying with his parents, both of whom are 50-year-old. As a spoiled child, Alex is strongly supported by his parents, so he does not have to work to earn incomes, if that is what he wants. Also, Alex will inherit their investment property as a heritage, after both his parents die. Once that occurs, Alex will sell the property to gain cash at the market price, which will be saved in a bank to support his daily life. Alex has no other sources of savings and/or incomes. For simplicity, assume that everyone will die at the age of 90.

Suppose that the rental return of the investment property is 5% per year, which is paid once annually. For the received rent, 95% will be used to support the living of Alex’s family, and 5% will be re-invested to the investment property to increase its market value. In practice, it can be maintenance work and/or simple add-on of the house. For instance, if the house is worth 1 million at the start of year, $50,000 rent will be earned at the end of year, among which $2,500 is re-invested, such that the house will be worth at its end-of-year market value + $2,500. 

Other essential assumptions are listed below:

• The market value of a house will increase at the average rate as over the dataset of your suburb in Assignment 1;
• The cash saving rate is 1.5% per year, paid once at the end of year;
• Inflation rate is 2% per year;
• Average yearly expense is $80,000 in 2020, which is to be charged once at the end of year; and
• The GST of the yearly expense is 10%.

With the above information, build a spreadsheet model to explore the age at which Alex’s assets will be depleted. Also, use a data table to demonstrate the sensitivity of the age at which Alex’s assets will be depleted to the cash saving rate and inflation rate. Use a scenario manager to consider at least three scenarios. For each one, consider changing at least three factors among constant rental return of the investment property, maximum of human life, average yearly expense, inflation rate, cash saving rate, GST of the yearly expense and yearly percentage increasement in the market value of the house.