Assignment Task
Question
Jim, who is 70 years of age, is contemplating relocating to new accommodation. To this end, he has conducted some research and has subsequently inspected two special accommodation houses, Carlton Manor and Surfside Terrace.The following information has been provided to him regarding Carlton Manor:
• He is entitled to purchase lifetime occupancy rights for $300,000 and thereafter, pay a weekly fee of $150.
• If he decides to vacate the property, a deferred management fee of 2.5% p.a. (on the vacating value) is required to be paid for a maximum period of eight years.
• He has been informed that he would be able to claim 75% of any capital gain when the property has been resold.The following information has been provided to him regarding Surfside Terrace:
• He is not required to pay any initial occupancy fee (ie, an ingoing fee). However, the current ongoing fee to be paid is $700 per week. This fee is to be increased based on any change in the Consumer Price Index (CPI). The return on investment rate is 3%Assume that the CPI increases at an average of 3% p.a., and Jim expects to be in residence for eight years.
REQUIRED:
(a) Calculate the total cost of his accommodation for both facilities – Carlton Manor and Surfside Terrace at the expiration of eight (8) years.
(b) What option would you recommend to Jim, in terms of his choice of accommodation? Provide a brief explanation as to why, citing the financial considerations that would be relevant.
(c) List two non-financial factors that he should consider.
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