This Assignment is to be typed (ie prepared using a computer and appropriate word processing software and, perhaps, other software) and is to be submitted electronically through MyUni and in pdf format. Be sure that you know how to save to pdf in advance of your submission. Furthermore, you must submit all your responses in one. The MyUni printing process only prints one file, so if you submit several files then all will not be printed and, therefore, not marked. The submission time is 11:00pm on Sunday 1st June 2014. Late assignments will be penalised at a rate of 20% of the achieved mark per day late (or part thereof). Submit via MyUni well in advance of the due time to ensure that you don’t have any problems with submissions. The submission time will be strictly adhered to.

This Assignment must be your own work. Students are reminded of the Business School’s plagiarism policy (as referred to in the course outline) and any occurrences of plagiarism will be dealt with according to School and University policy. Group Assignments are not permitted.

There is no need to attach a Cover Sheet as your submission is electronic. However, submitting electronically automatically means that you acknowledge that you have complied with the requirements of the plagiarism policies of the University, Faculty and Business School.

This assignment will be marked out of 20 marks and this represents 4% of your overall assessment in the course Accounting for Decision Makers I.

QUESTION 25 marks

You are a partner of a well respected Chartered Accounting firm called Sloan & Crouch. Your firm has clients who live locally, nationally and internationally and your specialty is in the sporting industry. One of your local clients, Mr Waylor Talker, has asked you for assistance in buying a car. While this might seem like a relatively easy task, Waylor has provided some strict instructions about the type of car he is after and the funding arrangements. Waylor is extremely busy with his sporting commitments and has relied on your advice many times.

Waylor Talker is 27 years of age and is a very successful sportsman in a high impact sport where severe biomechanical injuries are commonplace. He has:

 a significant and secure salary of $450,000 per annum (after income tax) under his present 4 year contract which was re-negotiated and signed on the 1st January 2014. His salary is guaranteed for the term of the contract regardless of how he performs and whether injury interferes with his playing;

 $350,000 in a bank account; and

 real estate worth approximately $2,500,000 which does not have a mortgage attached to it.

Waylor is looking to buy a new exotic sports car. This car is required to have only 2 doors, be high performance and is an internationally known brand. His instructions are for you to investigate the new car market (and the internet should provide sufficient resources for you to do this) and find a car that meets his requirements.

The car is to be financed through the use of some of his savings and a mortgage over his real estate. The specifics of this are:

 an exact 20% of his savings must be used

 at least 15% and no more than 25% of his salary must be used to fund mortgage repayments.

Waylor is financially risk averse and wants a mortgage term that meets his profile and circumstances. You are to manipulate the different variables and recommend a car which he should purchase. This will include you determining how much he should borrow and the repayment term. In relation to the mortgage you will need to locate a financial institution (ie a bank, credit union, home loan supplier or other financier) to fund the mortgage. Given that this is a commercial transaction, interest will be payable on the mortgage and you will need to ascertain an appropriate interest rate. Consequently, you need to locate a financial institution which provides loans for real estate and find an indicative annual interest rate for you mortgage (for ease use the rate for an investment property or a purchase of a residential property). Use that interest rate for the calculations required below and, for ease, assume the same rate applies for the entirety of the mortgage. It is important that the amount borrowed through a mortgage leaves sufficient equity so ensure that the amount borrowed does not exceed 20% of the value of the real estate. Mortgage repayments are to be made on a monthly basis. (You may find that in locating the price of cars that some quoted prices includes on-road costs while others do not. Just accept the price that is quoted regardless of whether it incorporates other costs or not.)

Required

You are required to write a letter to Mr Waylor Talker identifying the car which you recommend he should purchase and the letter will need to contain (but not necessarily in this order):

 The amount of monthly repayments on the mortgage which you advise Waylor to borrow to complete the purchase of the car. In determining this it may be that the advertised price may be in a foreign currency. Your answer will need to be in Australian dollars so you will need to convert the foreign currency based price. To do this you can use a foreign currency conversion website like http://www.ozforex.com.au/.

 A copy of the advertised interest rate for the loan and showing the financial institution.

 A copy of the advertisement/brochure for the car with the price.

 Calculations that clearly show how you arrived at your monthly repayments, including your reasons for the term of the loan selected. You can use a financial calculator OR tables of annuities OR a financial mathematical formula OR a internet site calculator (eg http://www.arachnoid.com/lutusp/finance.html). You should state what method you used. DO NOT USE ANY OF THE CALCULATORS PROVIDED BY FINANCIAL INSTITUTIONS.

1. You will receive marks for presentation. Your letter should be well written and presented in an easy to understand format and contain the necessary copies of the information requested as appendices. This does not mean that your letter needs to be lengthy – well written versions will be concise while covering the necessary points. (5 marks)

2. Consideration of the relevant information. The question asks you to research and gather information and to address certain tasks. You should state clearly and concisely your process, how you arrived at your decisions and provide the supporting information as required. You need to keep in mind that you are writing the letter to someone else, so it needs to be constructed in this professional context. Care needs to be taken here – you need to appreciate the order that issues need to be considered to arrive at an appropriate, professionally based and efficient decision. There are some parts of this question which have not necessarily been covered in lectures, but these issues can be solved by research and/or a logical approach. To assist Waylor with understanding the information, please complete the following Table and insert it in your letter. (20 marks)

Type of Car

Advertised price of car (Australian dollars)

$

Financial institution you have selected to get a loan

Interest rate pa

%pa

Term of the loan

years

Monthly repayment

$

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