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Nonfinancial assets-capital expenditures




Nonfinancial assets-capital expenditures;Unlike Richard, Monica remained very concerned about their financial future. Specifically, she;was fearful that the couple would not have enough money to retire comfortably as they had;expected. She asked whether she should postpone or eliminate one improvement on her house.;She estimated that a new boiler with a useful life of eight years would cost $20,000 and would;save $4,000 a year in heating bills. Monica wanted to know whether they should sell their home;now and invest the proceeds. She estimated that marketable securities would provide a return;of 5 percent after taxes. They thought the value of the house, now worth $300,000, would;increase by 6 percent a year. A rental in a comparable apartment would cost $2,200 a month.;Assume for purpose of this section only that Richard and Monicas marginal tax bracket is 30;percent and other statistics include;Annual maintenance;$3,000;Property taxes;$5,000;Insurance;$1,500;Case Application Questions;1. Do we know yet whether Monicas fears about retirement are justified? Do you have any;preliminary opinion about this?;2. Do you think she should consider a new boiler now?;3. Complete the boiler problem and give your response.;4. Calculate the projected return on the house for the next year and give your;recommendations.


Paper#25849 | Written in 18-Jul-2015

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