**Question 1**

The Moore household’s financial statements for 2016 and 2017 contain the following information:

2016 2017

Total net worth $ 410,000 $ 450,000

Total assets 980,000 810,000

Liquid assets 7,500 9,000

Total current liabilities 65,000 60,000

Total monthly loan payments 5,100 4,900

Monthly gross (before tax) cash inflow 12,500 14,000

Compute solvency, liquidity and debt service ratios for 2016 and 2017, and advise the Moores what the ratios reveal about changes in their financial condition.

**Question 2**

Marianna works part-time, earning about $26,000 a year. She pays her parents $40 per week board and spends approximately $110 per week in addition to $40 per week for public transport. Marianna has been saving to buy a car. She has $6,000 saved. Marianna has found a car for $16,000 that would suit her needs. She can get a personal loan for the $10,000 she needs at 8% interest per annum for 4 years. She thinks she would need $40 a week for petrol.

- a) Calculate the loan repayments for Marianna. Can she afford this loan?
- b) How much interest would be paid on the loan over the 4 years?
- c) List some additional costs that Marianna would need to factor in to her weekly budget now that she has a car.

**Question 3**

Matilda wishes to assess whether she should invest in both or only one of the investments listed below. Her required rate of return is 10%. What would you recommend to Matilda? Justify your recommendation.

Investment Q Investment R

Initial investment $15,000 $8,000

End of Year Income Stream

Q R

1 3000 6000

2 5000 3000

3 6000 3000

4 8000 5000

**Question 4**

Security K has a beta of 1.30. How does this security’s risk compare to that of the market? If the riskfree rate is 6% and the market rate is 12% per annum, what would be the expected return of security K?

**Question 5**

Zara works as a schoolteacher. Zara has set up a small study at the back of her house, which she estimates comprises 15% of her total floor space. Her weekly rent for the house is $400. Zara fitted out her study with a desk that cost $150 (and has a 10-year effective life); a computer worth $700 (two-year life) that she uses 40% of the time for work; and an office chair that cost $100 (five-year life). Can Zara deduct any of these expenses? Are there other (obvious) home-office expenses she could claim? Explain your answer and show relevant calculations. Assume Zara would prefer to use the prime-cost method for depreciation.

**Question 6**

- a) Mark is a retiree. Mark receives a $4,300 part Age Pension from the government per year and has $150 000 worth of shares, producing a 4% annual dividend yield (fully franked). Mark spent $150 getting his tax return done last year and a further $100 on a share-information website membership. Calculate for Mark his tax payable. Include all Medicare levies and offsets in your answer.

**b)**Mark is getting tired of managing his shares and wishes to know whether he should sell them and invest the cash into a high-interest savings bank account yielding 6% per annum. Assume his pension would remain unchanged. Note that Mark acquired his shares 10 years ago for $40,000 and would save $100 on the website-membership fees. Advise Mark on the best course of action to take.

**Question 7**

Brian has always been one to not spend money unless he absolutely has to. This is especially so when it comes to people he terms ‘overpaid and underworked’, so it was natural that he would spend just $49.95 on a will kit from an online business rather than seek professional advice for his estate planning.

He is married with three daughters, two of whom are over 21 years of age, with the third, Kelly, only 12. When he wrote his will, he made it such that his wife inherits everything, then the three children equally upon reaching age 21.

What problems do you foresee in the way Brian has made his will?

**Question 8**

Ben is 18 years of age and has just started his first job. His employer is making compulsory superannuation contributions for him and, as a member of the fund, he is automatically eligible for $100,000 of so-called ‘group’ life and total and permanent disability cover. He still lives at home with his parents and has a girlfriend of some two years and, according to your clients (his parents), they’ve recently been talking about marriage. Secretly, the parents are concerned Ben’s girlfriend could be pregnant.

Does Ben need a will, mindful that apart from his superannuation he has no other assets?