FNCE 627 Rupinder Individual Assignment 2204123
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1 Individual Assignment STRATEGIC WEALTH NAVIGATION Student Name: Rupinder Kumar Student ID: 2204123 University Canada West FNCE 627: Personal Financial Planning Professor: Tigist Wollelo Due Date: 11.12.2023
2 Table of Contents 1.0 Assumptions and Key Considerations ......................................................................................
3 2.0 Recommendations .....................................................................................................................
4 3.0 Financial Analysis .....................................................................................................................
5 3.1 Net Worth ..............................................................................................................................
5 3.2 Cash Flow ..............................................................................................................................
5 3.3 Strategies ...............................................................................................................................
6 3.4 Insurance Coverage ...............................................................................................................
6 3.5 Retirement .............................................................................................................................
6 3.6 Education ...............................................................................................................................
7 3.7 Major Purchase ......................................................................................................................
7 3.8 Emergency Fund ...................................................................................................................
7 3.9 IPP .........................................................................................................................................
7 4.0 Estate Analysis and Discussion ................................................................................................
8 5.0 Selling the Business ..................................................................................................................
9 5.1 Tax Planning for Selling the Business ..................................................................................
9 References .....................................................................................................................................
10
3 1.0 Assumptions and Key Considerations 1.1 Business Sale Assumptions The present growth trajectory serves as the foundation for the business sale assumptions for the technology-based company owned by the Hill family. According to estimates, the company might fetch a high price when it is sold, between $11 and $13 million USD, if this trajectory continues (McAdam et al
. 2020). An important factor that might raise the sale price to $20 million USD is the possible patent approval for one of Hank's side ventures. 1.2 Investment Assumptions: Developing a robust financial strategy relies heavily on well-formulated investment hypotheses. The anticipated rates of return play a pivotal role in shaping a diversified investment approach. Projections indicate a 3.2% return for fixed income, emphasizing stability, while a prudent short-
term strategy is set at 2.3%. The outlook for equity investments is optimistic, with developed and emerging market equities estimated at 6.5% and 7.4%, respectively. Canadian stocks are foreseen to yield 6.2% (Spiers et al., 2023). These projections not only guide the investment portfolio but also enable the anticipation of future growth. Simultaneously, considerations of debt management and leverage in the overall financial plan are intricately linked to the borrowing rate, set at 4.3%, reflecting a nuanced approach to balancing risk and return within the financial framework. 1.3 Tax Assumptions: Sound financial planning requires accurate tax estimates. The marginal tax rates in the federal and British Columbia are applied progressively, with respect to the 2023 tax bands. The federal rate is 15% to 33%, and the British Columbia rate is 5.06% to 20.5%. To reduce the overall tax impact, tax planning techniques, such as maximising RRSP contributions, are presumed to be used (Sun et al
. 2020). By using these assumptions, the financial plan is constructed with a realistic view of the tax environment, with the goal of maximising tax efficiency and boosting the family's wealth after taxes. 1.4 Inheritance Considerations: Basic Living Expenses $ 8,000.00 Annual expenses $ 96,000.00 Annual Education Funding (RESPs) per child $ 5,000.00 Total for 2 children $ 10,000.00 Insurance Premiums
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4 Life insurance for Hank and Peggy per year $ 2,000.00 Disability insurance per year $ 1,500.00 Hawaii Home Planning per year $ 7,000.00 Emergency Fund $ 20,000.00 Investment Contributions $ 50,000.00 Total annual expenses $ 1,86,500.00 The potential inheritance from Hank's 86-year-old wealthy uncle introduces a layer of intricacy to the budgetary considerations. Anticipated properties and businesses in the United States become focal points, demanding careful assessment for their implications on estate planning, tax obligations, and the broader financial security of the Hill family (Hebinc et al., 2021). The inclusion of inherited assets into the existing financial portfolio necessitates a strategic evaluation to optimize their impact. This involves not only managing the inherent complexities of cross-border financial matters but also ensuring seamless integration to enhance overall financial well-being. The family must navigate the nuances of estate planning strategies, considering potential tax implications and addressing any legal or financial intricacies associated with the inheritance. This comprehensive approach aims to not only preserve the family's wealth but also strategically leverage inherited assets to fortify their financial position in both the immediate and long-term contexts. 2.0 Recommendations •
Business Sale Decision: Hank should closely compare the existing financial needs to the state of the market, keeping in mind the possible growth in business value with the approaching patent approval. Holding up for the patent acceptance could optimise returns by producing a much higher sale price if the financial position permits a brief postponement. •
Insurance Recommendations:
To ensure the family has the necessary financial security in case of unanticipated events, Hank and Peggy should both obtain life insurance policies. A key person insurance policy is also advised because of Hank's critical role in the company, which helps to mitigate any financial effects in the event of incapacity or death.
5 •
Education Planning: Francesca and Nina should open RESP accounts and use government funding to supplement the education fund. •
Investment Strategy:
Using a well-balanced combination of bonds, stocks, and possibly real estate, create a diversified investment plan that corresponds to their risk tolerance. By minimising risk, this customised strategy optimizes growth. •
Retirement Planning: Invest in retirement accounts, consider the planned inheritance, and consider the benefits from a possible business sale. Together with achieving lifestyle objectives, this comprehensive approach guarantees financial stability in retirement. •
Major Purchase Strategy:
Be sure to carefully consider your big expenditures, including the development of the Hawaii site and a Whistler townhouse. 3.0 Financial Analysis 3.1 Net Worth The cornerstone of gauging an individual's or family's overall financial well-being rests on the calculation of their net worth, encompassing assets, liabilities, and equity. For the Hills, this involves a comprehensive evaluation of corporate accounts, potential revenues from a business sale, and their joint investment portfolio, constituting a substantial portion of their recent net worth assessment (Erskine et al., 2021). The diversification of their investment strategy and the potential appreciation of assets, such as the Hawaii property, are poised to contribute to an anticipated growth in net worth. However, the proactive management of debt obligations and consideration of potential tax responsibilities are crucial factors. Regular checks and periodic evaluations will ensure that their net worth aligns with their long-term financial objectives, providing a robust foundation for sustained financial health and security. 3.2 Cash Flow To manage daily spending and make plans for future financial objectives, cash flow analysis is essential. Hank's company, Peggy's pay, and dividend income provide a steady income for the Hills. They will have a major cash flow impact due to the upcoming business sale. Effective management of the shift from monthly income to possible lump-sum proceeds requires careful planning. To augment post-sale cash flow, strategies could include setting up an emergency fund,
6 budgeting your cash flow, and thinking about investing revenue streams. Financial stability requires striking a balance between short-term liquidity requirements and long-term investment ambitions. 3.3 Strategies In crafting the Hills' financial strategies, comprehensive wealth management takes center stage, incorporating crucial elements such as tax planning techniques, effective risk management, and a meticulously balanced investment portfolio (Li et al., 2020). The foundation of their financial approach lies in a diversified investment plan, strategically navigating the delicate balance between risk management and optimizing returns to suit their moderate lifestyle. Tax planning plays a pivotal role, with potential utilization of the lifetime capital gains exemption for an anticipated business sale and the optimization of RRSP contributions. These meticulous strategies are geared not only towards immediate financial stability but also towards fostering sustained prosperity, ensuring the Hills' financial well-being aligns seamlessly with their long-
term objectives. 3.4 Insurance Coverage As a means of risk mitigation, insurance is essential to the Hills' overall financial strategy. For the financial security of their family in the case of an early demise, Hank and Peggy should both get life insurance. If Hank were to become disabled or pass away, key person insurance would protect the company's finances and ensure continuity (van der Ham et al
. 2020). To keep up with evolving situations, including company expansion or personal life events, these coverages should be routinely evaluated and modified. 3.5 Retirement The CPP, OAS, employment pension, investment accounts, and the anticipated proceeds from the sale of the firm are just a few of the income streams that the Hills have thoroughly evaluated todevelop their retirement plan. Transferring from active to retirement income streams is a challenging experience. To guarantee a financially secure and satisfying retirement, prudent investment allocations, tax-efficient withdrawal techniques, and regular goal reevaluations are essential.
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7 3.6 Education Francesca and Nina's RESPs are the focus of the education planning process. To get government grants and tax breaks, it is advised that contributions be made to these programmes. Financial assistance for the children's post-secondary education will be provided by the RESP's increasing investment. They will be most effective in reaching educational objectives if contribution amounts are in line with projected education expenditures and consider these plans' flexibility. 3.7 Major Purchase Achieving a careful balance between short-term liquidity and long-term aspirations is crucial when devising a strategy for significant purchases, like building a Hawaii lot and buying a condo in Whistler (Javadi
et al
. 2019). Though there may be time and tax concerns, these acquisitions could be made possible by the funds from a potential business sale. Accompanying these important assets into the Hills' financial plan will require a staged approach that synchronizes acquisitions with cash flow and investment returns. 3.8 Emergency Fund Being a safety net for unforeseen costs or interruptions in income, an emergency fund is an essential part of financial planning. Up to three to six months' worth of living expenses should be kept in the Hills emergency fund (He et al
. 2023). Resilience in terms of finances and liquidity are crucial given the possible changes brought about by the business sale. Their overall financial stability will improve with regular reviews of the emergency fund amount and modifications based on evolving circumstances. 3.9 IPP An analysis of the tax benefits and retirement income planning is necessary when thinking about an individual pension plan. Extra retirement income beyond typical retirement savings can be obtained through the Individual Pension Plan. Contribution caps, eligibility requirements, and the effect on total retirement strategies must all be carefully considered. To maximize the benefits of an IPP and integrate it into their retirement plan, they must consult with a financial expert.
8 4.0 Estate Analysis and Discussion 4.1 Overview of Current Estate Real land, company ownership, financial accounts, prospective inheritance, and personal belongings are among the many assets that make up the Hill family's estate. It is essential for efficient estate planning to comprehend the present estate's makeup and worth (Wendler et al
. 2021). The joint investment account, the firm, the Hawaii lot, and the inheritance Hank's uncle is scheduled to leave are among the other assets. 4.2 Inheritance Planning The anticipated inheritance from Hank's uncle presents a dual facet of both opportunity and complexity within the estate plan. Crucial considerations encompass the intricate realm of tax consequences, necessitating a comprehensive comparative analysis of U.S. and Canadian tax legislation. Simultaneously, a meticulous wealth distribution strategy must be devised. To achieve this, a profound understanding of the characteristics inherent in inherited assets is imperative, aligning the family's overarching financial goals with the judicious distribution of these assets (Nadiv and Kuna, 2020). It is paramount to underscore that the seamless transfer of assets hinges on the existence and precision of essential legal documents, including wills, trusts, and other agreements. By navigating these intricacies adeptly, the estate plan can harness the full potential of the inheritance, ensuring it becomes a strategic asset in realizing the family's long-
term financial aspirations. 4.3 Potential Impact on Estate: The impending inheritance holds multifaceted implications for the Hill family estate. Foreseeing a substantial surge in overall wealth, the family is poised to undergo a reassessment of their financial objectives. Beyond the immediate financial impact, this windfall provides a propitious occasion for strategic asset diversification, mitigating concentration risk and fortifying the family's long-term financial stability. The judicious allocation of the inheritance across a varied portfolio stands as a prudent measure to enhance financial resilience and align their wealth management strategy with evolving goals and aspirations.
9 5.0 Selling the Business
5.1 Tax Planning for Selling the Business Capital Gains Exemption:
Use the Lifetime Capital Gains Exemption as much as possible to reduce your tax obligation on the selling proceeds. Timing Strategies:
Consider current and projected tax rates when carefully timing the transaction to maximize tax efficiency. Structuring Options:
Choose the most tax-efficient strategy for the family by weighing the advantages and disadvantages of selling shares vs assets. Corporate Structures: Examine how to limit the timing of your personal tax payment by managing the flow of income through holding companies. Capital Gains Deferral: To enable for tax deferral, use capital gains reserves for a portion of the future sale proceeds. Deductible Expenses:
To lower your taxable revenue, list and subtract all allowable sale-related expenses. Estate Freeze Consideration:
If you want to secure the existing value of your business for future tax planning, consider the option of an estate freeze. Integration with Personal Finances: Create an estate planning, retirement, and investment strategy that takes the newfound liquidity and aligns it with it. Professional Guidance: To maximize after-tax revenues and ensure compliance with tax legislation, consult with financial advisors and tax professionals who have experience with business sales.
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10 References Erskine, S.E., Archibold, E.E. and Bilimoria, D., 2021. Afro-Diasporic women navigating the black ceiling: Individual, relational, and organizational strategies. Business Horizons
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(1), pp.37-50. He, Q., Borgonovi, F. and Suárez‐Álvarez, J., 2023. Clustering sequential navigation patterns in multiple‐source reading tasks with dynamic time warping method. Journal of Computer Assisted Learning
, 39
(3), pp.719-736. Hebinck, A., Zurek, M., Achterbosch, T., Forkman, B., Kuijsten, A., Kuiper, M., Nørrung, B., van’t Veer, P. and Leip, A., 2021. A sustainability compass for policy navigation to sustainable food systems. Global Food Security
, 29
, p.100546. Javadi, A.H., Patai, E.Z., Marin-Garcia, E., Margois, A., Tan, H.R.M., Kumaran, D., Nardini, M., Penny, W., Duzel, E., Dayan, P. and Spiers, H.J., 2019. Backtracking during navigation is correlated with enhanced anterior cingulate activity and suppression of alpha oscillations and the ‘default-mode’network. Proceedings of the Royal Society B
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(1908), p.20191016. Li, Y., Zhang, Y.A. and Shi, W., 2020. Navigating geographic and cultural distances in international expansion: The paradoxical roles of firm size, age, and ownership. Strategic Management Journal
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(5), pp.921-949. McAdam, M., Clinton, E. and Dibrell, C., 2020. Navigation of the paradoxical landscape of the family business. International Small Business Journal
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(3), pp.139-153. Nadiv, R. and Kuna, S., 2020. Diversity management as navigation through organizational paradoxes. Equality, Diversity and Inclusion: An International Journal
, 39
(4), pp.355-377. Spiers, H.J., Coutrot, A. and Hornberger, M., 2023. Explaining world‐wide variation in navigation ability from millions of people: citizen science project sea hero quest. Topics in cognitive science
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(1), pp.120-138. Sun, P., Doh, J.P., Rajwani, T. and Siegel, D., 2021. Navigating cross-border institutional complexity: A review and assessment of multinational nonmarket strategy research. Journal of International Business Studies
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(9), pp.1818-1853. van der Ham, I.J. and Claessen, M.H., 2020. How age relates to spatial navigation performance: Functional and methodological considerations. Ageing Research Reviews
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, p.101020. Wendler, T., van Leeuwen, F.W., Navab, N. and van Oosterom, M.N., 2021. How molecular imaging will enable robotic precision surgery: The role of artificial intelligence, augmented
11 reality, and navigation. European Journal of Nuclear Medicine and Molecular Imaging
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(13), pp.4201-4224.
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Brief Exercise 11-30 (Algorithmic)
Determining Net Cash Flow from Investing Activities
Orlando Inc. reported the following information:
12/31/2019
12/31/2018
Furniture
$46,000
$32,000
Accumulated depreciation
15,900
12,500
Investment (long-term)
38,000
50,000
In addition, Orlando sold furniture costing $29,400 with accumulated depreciation of $16,170 for $15,350. Orlando also reported a $1,100
gain on the sale of long-term investments.
Required:
Compute net cash flow from investing activities. Use a minus sign to indicate negative cash flows (outflows).
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Set up T-accounts to determine activity in the furniture account. Recreate the journal entry to determine the cash flow related to the long-term investment ac
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EZ CASH FLOW
CASH
ACCOUNTS PAYABLE
JOHNSON CAPITAL
CASH
82.000
F
100.000
20.000 I
4.000
3.000
100.000
АСCTSREC
15.000
15.000
10.000 O
10.000
106.000
9.000
EQUIP
3.000 F
6.000
ACC DEPR
82.000
ACCTSPAY
6.000
EXPENSES
REVENUE
J CAP
ACCOUNTS RECEIVABLE
CLOSING:
20.000
20.000
3.000
30.000 REV
27.000
15.000
REVENUE
30.000
EXP
EXPENSES
20.000
27.000 DEPR EXP
15.000
DEPR EXPENSE
1.000
82.000
48.000
J CAPITAL
9.000
DEPRECIATION EXPENSE
EQUIPMENT
1.000
1.000
20.000
20.000
Note: enter the drawing as a debit
to the capital account.
There are three types of cash flows:
ACCUM. DEPR EQ.
1 OPERATING: cash flows from revenues and expenses.
1.000
1.000
2 INVESTINIG: cash flows from purchasing or selling assets.
3 FINANCING: cash flows from owner's investment or withdrawals.
CASH FLOW STATEMENT
TRANSACTIONS-Using your pencil, write each debit and credit into the T-accounts above.
Cash Flows from Operations
1 Sally Johnson invested $100,000 in her business, Sally's Consulting.
2 Sally purchased equipment…
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