USB143/USB241: Accounting - Money and Wealth - Report Writing Assessment Answer

Internal Code: E_AI_DGHG_AJI Code: USB143/USB241

Accounting Assessment Answer

Assignment Task: USB143/USB241 Your group are owners of a reputable property advisory firm. I, as a client of your firm, approach you to assist me by providing me with a formal report that includes the following detailed contents: 1. Select a property from realestate.com.au, domain.com.au, realcommercial.com.au, or any real life real estate agent listings for me to purchase as an investment. I have available cash savings of $500,000 to invest in the property but I do not necessarily have to spend all of it. I wish to maximise the debt on the purchase of the property and take out an interest-only loan. Based on your firm’s research, most financiers are prepared to lend at a LVR of up to 80% for residential properties and 65% for commercial properties. Your report should clearly include the following: (i) The total amount I will need to purchase the property, including incidental costs such as stamp duty and legal costs; USB143/USB241 (ii) The total amount of debt I will be able to secure to buy the property, assuming that the bank is prepared to fund all incidental costs as well; USB143/USB241 (iii) The total amount of equity in cash I will need to contribute to buy the property; (iv) The estimated annual rental income and expenses associated with the property, including details of your research sources for each item of income and expenses included in your calculations; and (v) Any assumptions you have made based on credible research regarding the future increase/decrease of each income and expense item during my ownership of the property. USB143/USB241 2. I wish to invest in the property for exactly 10 years. After this period, I would like to immediately sell the property to realise my investment. USB143/USB241 Your report should state the sale price I can expect to achieve on sale, including the assumptions you have made based on credible research. Assuming that I am paying tax at the highest marginal tax rate (including the Medicare Levy) of 47%, the report should calculate my: (i) after-tax total return on investment in dollar terms; (ii) after-tax total return on investment %; and (iii) after-tax total return on capital % from the property investment over the 10 years. USB143/USB241 The total return on investment in dollar terms needs to take into account: (i) the after-tax net rental income (or loss) on the property for each of those 10 years; and (ii) the after-tax net capital gain (or loss) on the property at the end of the 10 years. 3. If I have not invested my money in the property, I would have invested in the share market. In particular, I would have invested the full amount of equity in cash I would otherwise invest in the property above in the Vanguard Australian Shares Index ETF (ASX: VAS). However, I would not have geared the investment as it is my view that gearing shares is too risky for my risk appetite. Therefore, your report should calculate my: USB143/USB241 (i) after-tax total return on investment in dollar terms; (ii) after-tax total return on investment %; and (iii) after-tax total return on capital % from my investment in VAS over the 10 years, rather than property. 4. Alternatively, if I have not invested my money in the property or share portfolio, I would simply have put the money into a term deposit account. USB143/USB241 Therefore, your report should calculate my: (i) after-tax total return on investment in dollar terms; (ii) after-tax total return on investment %; and (iii) after-tax total return on capital % from the term deposit over the 10 years if I have simply invested the cash in a term deposit account, rather than the property or share portfolio. 5. Analyse the above results and provide me with your recommendation as to whether I should invest in the selected property, share portfolio, or term deposit, including the full rationale for your recommendation. This should be communicated in point form, rather than in an essay format. However, it should be in a professional format to provide advice to me as your client and the report should be logically set out to maximise readability. USB143/USB241 Context of assignment - USB143/USB241 This assignment requires you to research various real-life data pertaining to various types of investments. The findings from your research are meant to supplement the material in the lectures to reinforce knowledge retention and promote a deeper understanding of the course material. While the lectures may include some of the information that is relevant to the assignment, students are expected to exercise their intellectual curiosity and conduct independent external research to complete the assignment, rather than rely on the information presented in the lectures. The lecture material should be seen as confirmation of the research conducted.

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