Hi Everyone. I’ve encountered several mock exam questions asking about the return objective for the following year. However, up to now, it confuses me when to include the income salary in the computation of the return objective. Are there indicators on when to include it as an inflow or when to ignore it?
Thoughts, anyone?
yea, if they are earning the salary for the foreseeable future, no need to include it.
but if the individual needs it to live off, and they lose their job, or they are retiring soon, or their circumstances change such that they will no longer get the salary, then it should be included in the return objective.
Required return = Net cash need/ investable asset
Net cash need = expense - income (including salary)
But if client retire next year. of course no salary to consider.