Case Application: Non financial 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 comparable apartment would cost $2,200 a month. Assume for purposes of this section only that Richard and Monica's 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 Monica's 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 full recommendation.

5. Finish the non financial investments section of the plan.