Family Finance - Assignment Example

Family Finance Affiliation with more information about affiliation, research grants, conflict of interest and how to contact Family Finance Question 1: Cash flow statement shows the various incomes gained and expenditures incurred by the organization during a particular year. Cash inflow refers to the earnings of the organization and cash outflow means the expenditures from the organization. Cash flow statement of Brad: Cash Inflow Annual salary = $ 51,600 Bonus = $ 4,300 Dividend income = $ 35,000 Drawings from bank = $ 30,000 CPF contribution = $ 8,665 Total = $ 129565 Cash Outflow Down payment =$ 75,000 Payment on car = $ 35,000 Total = $ 110,000 Surplus amount = $ 19,565 Cash flow Statement of Claudia Cash inflow Rental income = $ 162,000 Interest income = $ 6,500 Withdraw from bank = $ 200,000 Interest on savings a/c= $ 200 Total $ 368700 Cash outflow Down payment = $ 200,000 Total = $ 200,000 Surplus amount = $ 168,700 Brad is working as a senior manager who receives an annual income of $ 51,600. He has investment in banks and he received dividend of $ 35,000. During this year, he made a surplus earning compared to his outflow of cash. Claudia is a house wife and she earned a rental income of $ 162000 she got an interest of $6,500 on her deposit and $200 for savings deposit. During this year she had inflow of $368700 whereas, the cash outflow was $200,000 and the surplus amount is $168700. Surplus amount refers to the balance amount after the total expenditure is deducted from total income. However, if the expenditures exceed income, then there will be a deficit. Surplus helps to meet contingencies in the future as well as to meet all anticipated expenditures in the future. Net Worth: Net Worth = Asset- Liabilities Brad Net Worth Asset Spore equities = $350,000 CPF OA = $75,000 CPF SA =$35,000 Insurance = $9,600 Savings A/C = $ 30,000 Total = $ 594,600 Liabilities West coast property = $ 250,000 Car loan = $ 95,000 Total = $ 345,000 594,600- 345,000 = $ 249600 Net worth = 249600 Claudia’s Net Worth Asset Fixed deposit = $200,000 Insurance = $6,500 Pine Grove condo = $ 860,000 Amber property = $ 950,000 Total = $ 2016500 Liabilities Loss in investment = $ 70,000 Outstanding loan = $ 78,000 Total = $ 148,000 Net worth = asset- liabilities $ 2016500-$ 148,000 = 1868500 The net worth amount of Claudia is greater as compared to Brad. As it can be seen, Claudia has more assets than Brad. Brad Financial Ratio: Liquidity Ratio = Current Asset/ Current Liability 39600/95000 = 0 .41 Liquid-Assets to Net worth Ratio Liquid Assets to Net worth = Cash / near Cash divided by Net Worth  30,000 / 249600 = .12 Net Investment Assets to Net worth Ratio = Total Invested Assets divided by Net Worth 350,000 + 75000 + 35000/ 249600 = 1.84 Debt-to- Asset Ratio = Total Long Term Debts / Total Long Term Funds 250,000/ 350,000= 0.71 Claudia’s Financial Ratio: Liquidity ratio = current asset/ current liability 6500+ 200+ 162000/ 78,000 = 2.1 Liquid-Assets to Net worth Ratio Liquid Assets to Net worth = Cash / near Cash divided by Net Worth  200,000/1868500 = 0.10 Net Investment Assets to Net worth Ratio = Total Invested Assets divided by Net Worth 200,000 + 860,000 + 950,000 /1868500 = 1.07 Debt-to- Asset Ratio = Total Long Term Debts / Total Long Term Funds 78000/ 200,000+ 950,000+ 860,000 = 0.038 Question 2: In Singapore, a working mother is entitled to get a tax relief as follows. She will get a tax relief of 15% for the first child, 20% for the second child and 25% for the third child. Suppose she earns an annual income of $ 75000 and she is liable to pay 6% tax, that mean she has to pay the following tax $ 75000*6/100= $ 4500. As a working mother, she is liable to pay only 4.5 % then her tax structure is as follows: $75000*4.5/100 = $ 3375. In Singapore, the citizens can save $7000 on their tax amount to be paid on annual return. Suppose in the case of Claudia, she has to pay an amount of $10,000 as tax for her annual income. By utilizing parent’s tax she is entitled to get relief on her tax amount and she needs to pay only $3000 as tax instead of $10,000. In Singapore, the maximum contribution to supplementary retirement scheme is 15%. “A Singaporean, Singapore permanent resident (SPR) or foreigner who earns any form of income (eg employment income including directors fees, trade income, rental income)” (Individuals: Foreigners, 2007, para. 1). One has to pay a maximum of up to 15% of their annual income in the SRS account. If Claudia has an annual return of $75000, then she can contribute to SRS 15%. According to this, SRS of Claudia will be as follows: 75000*15/100 = 11,250. As per this example, she can contribute about 11,250 on SRS account. Question 3: Claudia seeks your advice for the most effective way of planning to give her assets to the following beneficiaries: i. Change properties ownership from Single Ownership to Joint Tenancy with her 3 Children The most effective way of planning to change properties ownership from Single Ownership to Joint Tenancy with her 3 Children are by adopting Joint Tenancy with Right of Survivorship, Tenancy by the Entirety and Community Property with Right of Survivorship. ii. Insurance Policies’ Proceeds to Brad and Javier Insurance Policies’ Proceeds to Brad and Javier is best with whole life insurance. iii. Saving Account to charity Claudia and Brad have no systematic savings plan. Question 4: (4a) Step 1: to compute the Estimated Annual Retirement Expense amount at age 62. You need to first find the: Present Value Annuity Due Factor at 23 years with adjusted rate of return of 2% i.e. (5% - 3%) is Insurance of Brad = $ 9,600 Insurance of Claudia = $ 6,500 Insurance Premium = $1,820.00 5% of 9600= 480 3% of 9600= 288 So the Present Value Annuity Due Factor at 23 years with adjusted rate of return is 480-288 = 192. The Estimated Required Retirement Amount at age 62 is = $1,935,026.00 The Estimated Annual Retirement Expense at age 62 is $1,935,026.00/192 =10078.2604. (4b) Step 2: To compute the Required Annual Retirement Expenses in today’s dollar, you have to first find the: Future Value Factor after 13 years with an average rate of inflation of 3% is $300,000*3%= 9000. The Estimated Annual Retirement Expense at age 62 as derived above. Annual Retirement Expense at age 62 is $83,065.00 The Required Annual Retirement Expenses in today’s dollar at age 49. The Required Annual Retirement Expenses in today’s dollar at age 49 is $83,065.00/9000= 9.223. Reference List Individuals: Foreigners, (2007). Inland Revenue Authority of Singapore. Retrieved Oct. 12, 2011, from http://www.iras.gov.sg/irasHome/page04.aspx?id=6036 Read More