Contingency Theory Of Incentive Alignment

Tax Reduction Measures and Incentive Alignment

Discuss About The A Contingency Theory Of Incentive Alignment.

The above calculated savings ratio relevantly depicts the overall percentage of savings, which is been conducted by Janet and Stephen after calculating income after tax and savings over time. In addition, the surplus income after the deduction is relevantly at the level of $27,010, which is derived after deducing all the expenses incurred by Janet and Stephen. Management, the derivation of the savings ratio would eventually help in understanding the level of amounts, which could be invested by the individual for generating high level of returns. In addition, the taxation amount is calculated by using the income tax provision in Australia, which segregates the income in different level of $37000 and $81000 for deriving the actual taxable amount of Janet and Stephen. Therefore, with the identification of the taxable income the overall savings conducted by Janet and Stephen could be identified.

From the overall evaluation of the above calculations that tax liabilities of the couple could be identified, which could be minimized by including tax exemption listed by the Australian government. The nature of expenses is not detected in the above case, which is why the tax exemption is not deducted from the taxable income. The segregation of different expenses conducted by Janet and Stephen could eventually help in subtracting different level of deductions from the taxable income to reduce the tax cash outflow. Moreover, the taxable income can also be reduced with the help of charitable donations conducted by Janet and Stephen. This would eventually help in reducing the taxable amount of the taxpayers and maximizing income retention capacity. Hitt and Duane (2017) mentioned that with the help of tax reduction measures individuals are able to minimize their tax expenses, while maximizing the savings on yearly basis.

The current tax amount is relevantly high for Janet and Stephen, which is due to the non-segregations of all the expenses incurred by the company. Moreover, the use of relevant segregation of different expenditures could eventually help in identifying the overall tax exemptions, which could be used in minimising the level of taxable income of Janet and Stephen. The identification of the tax provisions might eventually allow Janet and Stephen to improve the level of their savings, after conduiting relevant expenses and tax provisions. Moreover, the Income Tax Assessment Act 1997 disclosed in Austria relevantly provides the details regarding the level of tax provisions that needs to be conducted by individuals. Therefore, with the strategy of utilising the level of adequate tax provisions Janet and Stephen could eventually reduce their overall tax liability and minimise their tax cash outflow. On the other hand, Dang, Forsyth and Vetzal (2017) argued that without the segregation of expenses the individual is not able to detect the overall taxable amount, which is due to the Australian government.

Investment Portfolio Diversification and Incentive Alignment

Reviewing blades investment portfolio and explaining whether they are diversified adequately, while considering both the investment across different asset classes and making two different recommendations on how they should change their portfolio:

The current portfolio maintained by Janet and Stephen  is relatively diversified and has all the relevant investment instruments which could generate adequate returns from investment. In auditing, the composition of the portfolio is relatively conservative, where 66.67% of the total portfolio is comprised of risk free asset, why 33.33% comprises of growth assets. This relatively minimizes the chance of obtaining higher returns from investment, as the portfolio focuses on fixed returns. Therefore, the current changes in the portfolio could be conducted where 66.67% will consist of growth stocks while the other 33.33% will consist of risk free asset for reducing volatility of the capital market. This provision would eventually allow Janet and Stephen  to generate higher rate of return from their investment (Dang, Forsyth and Vetzal 2017).

The current portfolio that is been maintained by Janet and Stephen is mainly considered conservative, as it is invested in risk free assets, while the change in the portfolio could be conducted to improve the level of profits from investment. The conservative nature of the portfolio could be improved to growth phase, which might help in maximizing the level of profits from operations. The chances in overall portfolio could be conducted, where maximum of the returns will be generated from shares. Therefore, the portfolio could eventually help in generating high level of returns from investment, while increasing the risk from investment. According to May (2017), investment conducted in different asset classes allow the investors to minimize the risk from investment, while generating high level of returns from investment.

The second recommendation that could be conducted by Janet and Stephen is the use of standard portfolio, where both conservative and growth financial instrument are used in generating high level of return from investment. In addition, the segregation of the portfolio could be conducted, where 50% of the investment will be conducted in Macquarie Group Ltd Shares, which is considered to fall under growth perspective. On the other hand, the second 50% investment needs to be conducted in NAB savings Account and Vanguard Bond Fund, which relevantly has no risk from investment. This could eventually have slow growth as 50% of the returns from investment will be fixed due to the investment in risk free assets. Hence, with the help second recommendation the overall prolific could minimize the risk from investment and obtain higher rate of returns from investment, as compared to recommendation one. Hitt and Duane (2017) stated that investors with identified risk and return measure of stock are able to formulate portfolio, which might reduce risk from investment and generate higher rate of returns.

Future Value Calculation and Incentive Alignment

Calculating future value of contribution and investment portfolio after 10 years, where the interest rate is at 5% p.a, which could help support the deposit required of Janet and Stephen :

The above valuation mainly represents overall future value of investment conducted in the current investment of Vanguard Bond Fund, NAB savings Account and Macquarie Group Ltd Shares. Moreover, the calculation relevantly represents the overall use of 5% return till 10 years on annual basis, which will generate an overall return of $97,734. The returns generated by the current portfolio is relevantly low, as the provisions that is conducted by the investment is not adequate. Additionally, Alam, Gupta, and Shanmugam (2017) stated that portfolio could only provide higher rate of returns from investment when high growth stock with high risk is accumulated in the portfolio of the investor.

The above calculation is relevantly conducted to identify the return that will be generated from contribution investment. in addition, the contribution investment mainly provides return of $95,043.50, which is not sufficient for supporting the overall deposit requirement of Janet and Stephen. The contribution conducted by Janet and Stephen on yearly basis will provide a total return of 5%, which could help in generating a constant retune from investment.

The above calculations represent the minimum requirement of additional investment that needs to be conducted by Janet and Stephen  to fulfill the required deposit of $200,000. The investment of $574.25 on yearly basis would eventually help Janet and Stephen  to generate the required rate of returns from investment. Both the investments in portfolio and contribution mainly provides a return of $192,777 in 10 years with a total return on 5%, while the deposit amount was $200,000. Therefore, keeping in mind the deposit amount of $200,000, an additional investment of $574.25 need to be conducted on every year till the next 10 years of investment.

The above calculation would eventually help in detecting the extra investment that need to be conducted by Janet and Stephen for obtaining the level of desired deposit amount. In addition, the investment can be conducted in different levels, which might be helpful in improving the level of returns from investment. accounting, with the implementation of investment $574.25 could directly allow Janet and Stephen to improve their return generating capability. Furthermore, with the implementation of the required level of profits would eventually help in generating high level of returns. In this contest, Takacs et al. (2017) stated that with the use of adequate investment options the investors are able to maximizes their return while minimizing the risk from investment. On the other hand, Nolan, Wu and Low (2018) criticizes that due to the negative impact from capital market the overall portfolio losses relevant increases from investment, while hampering the actual investment capital. Therefore, Janet and Stephen could adequately conducted the extra investment in their portfolio for improving the level of returns from investment.

Reference

Alam, N., Gupta, L. and Shanmugam, B., 2017. Islamic Wealth Management. In Islamic Finance (pp. 451-473). Palgrave Macmillan, Cham.

Alstadsæter, A., Johannesen, N. and Zucman, G., 2017. Who owns the wealth in tax havens? Macro evidence and implications for global inequality (No. w23805). National Bureau of Economic Research.

Beyer, C.B., 2017. Wealth Management Unwrapped, Revised and Expanded: Unwrap what You Need to Know and Enjoy the Present. John Wiley & Sons.

BURTON, D., 2018. The US Racial Wealth Gap and the Implications for Financial Inclusion and Wealth Management Policies. Journal of Social Policy, pp.1-18.

Dang, D.M., Forsyth, P.A. and Vetzal, K.R., 2017. The 4% strategy revisited: a pre-commitment mean-variance optimal approach to wealth management. Quantitative Finance, 17(3), pp.335-351.

Hitt, M. and Duane Ireland, R., 2017. The intersection of entrepreneurship and strategic management research. The Blackwell handbook of entrepreneurship, pp.45-63.

Krongkaew, M., 2017. The Despot’s Guide to Wealth Management: On the International Campaign Against Grand Corruption by Jason C. Sharman Cornell University Press, Ithaca, NY, 2017 Pp. 274. ISBN 978 1 5017 0551 9. Asian?Pacific Economic Literature, 31(2), pp.145-148.

May, P.J., 2017. Art and Collectibles for Wealth Management. Financial Behavior: Players, Services, Products, and Markets, p.422.

Mc Laughlin, L. and Buchanan, J., 2017. Revenue Administration; Implementing a High-Wealth Individual Compliance Program (No. 17/07). International Monetary Fund.

Nolan, R.C., Wu, T.H. and Low, K.F. eds., 2018. Trusts and Modern Wealth Management. Cambridge University Press.

Sharman, J.C., 2017. The Despot’s Guide to Wealth Management: On the International Campaign Against Grand Corruption. Cornell University Press.

Steinbach, A.L., Holcomb, T.R., Holmes, R.M., Devers, C.E. and Cannella, A.A., 2017. Top management team incentive heterogeneity, strategic investment behavior, and performance: A contingency theory of incentive alignment. Strategic Management Journal, 38(8), pp.1701-1720.

Takacs Haynes, K., Campbell, J.T. and Hitt, M.A., 2017. When more is not enough: Executive greed and its influence on shareholder wealth. Journal of Management, 43(2), pp.555-584.

Uhl, M. and Rohner, P., 2017. The Future of Digital Wealth Management.

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