Sandeep Seddy Sunny Vacations Assignment.

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University Canada West *

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ACCT 621

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Finance

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Feb 20, 2024

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1 Sunny Vacations Analysis Setting out on a fresh business venture is unquestionably a formidable undertaking, as it requires a comprehensive examination of the history to establish a sustainable presence over the long term. Moreover, it should be noted that only some individuals are well-suited for the entrepreneurial lifestyle, given the inherent dangers and the level of resilience it demands. In Canada, a significant number of start-ups, over one hundred million, are established each year (Szecsei, 2022). However, most of these businesses, around ninety percent, tend to experience failure, with a significant portion facing this outcome during their first year of operation (Szecsei, 2022). When considering these facts, it is essential for the business professional to carefully evaluate all available information and create accurate predictions in order to make an informed judgment about the viability of particular company possibilities. Evaluation should be conducted prior to commencing any project. In this context, several accounting and financial instruments may be used to quantify and rationalize potential decisions. This essay will examine various scenarios related to the potential career paths available to individuals seeking to establish themselves professionally in Canada. These scenarios include securing part-time employment directly related to their field of study, pursuing part-time work unrelated to their area of study, considering the establishment of a small sole proprietorship, and exploring the option of operating the start-up as a partnership. Analysis of Sunny’s Alternatives The analysis begins by introducing some assumptions and explanations that are relevant and used in the computations. They include: The automotive expenditures accounted for after an extensive review of web sources. Based on the above information, using a 2017 Honda Civic, valued at around $18,098 and driven

2 for a monthly distance of 20000 km, will result in an estimated monthly expenditure of approximately $988 (Arnold & Hurst, 2022). The approximate cost per kilometer would be $0.05. The rental value is determined via a concise internet investigation on Vancouver Craigslist or Facebook Marketplace platforms. The cost of renting a solitary room for an individual is estimated to be $800 monthly. The expenditures for internet access, utilities, and mobile phone use from personal observations and experiences in Vancouver. The monthly costs are $95.2, $100, and $57.12 respectively. The internet and utilities are shared; one should pay 20% of the cost. The first investment under consideration includes the reserve price for the name plus the provincial and municipal registration costs, which amount to $30 and $106, respectively (Government of BC, 2023; City of Vancouver, 2023). The discount rate used for all the instances under consideration was determined based on the original statement of the exercise: 7.05% and 8.00%. These rates have been compared to actual market values and are correct (Scotiabank, 2023). The residual value of the billboard from a scholarly paper indicated that the disposal value often ranges from 0% to 40% of the original value of the billboard, with 20% as the most used (Cris & Bradley, 2004). The costs of hiring a bookkeeper and an accountant to handle the yearly tax return were examined in a start-up scenario, using information from internet sources. As per Avalon (2022), the monthly cost for a bookkeeper is $275, while the annual cost for an accountant tax return is $3250.

3 According to ScotiaBank (2023), the monthly charge for a bank account was deducted from online platforms as $297 for small transactions and $762 for many transactions. The computations were performed on Microsoft Excel and can be referred to in case for clarification. Marketing Assistant at Diane and Second job (Part-time) The Excel worksheet shows the net cash flows from the income generated by the two part-time occupations and the corresponding costs. Upon completing the fifth year, Sunny will terminate his part-time employment as he will transition into a full-time role as a marketing assistant. The exclusion of automobile expenditures from consideration is justifiable because the actual cost of the car is estimated to be 0.05 CAD per kilometer. However, Sunny is getting a reimbursement rate of 0.61 CAD per kilometer. In the first scenario, Sunny's annual net income would amount to around $38,400 up to the fifth year and $39,200 after the fifth year. The notable aspect of the situation is that there is little potential for further enhancements in net incomes, as they will not be directly contingent upon his actions. Consequently, his yearly earnings will remain consistent unless he receives improved compensation. Start-Up Travel Agency- option 1 The significance lies in that the inaugural year of activities will yield a negative financial outcome despite the seemingly low initial investment required to initiate the business. Consequently, when accounted for alongside the initial outlay, the funds necessary to sustain the business throughout its first year may not be as insignificant as initially perceived. Consequently, seeking additional financial support through a larger bank loan is imperative. The numerical values that define this particular situation are: The NPV is $52,474.46

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4 The IRR is 52% The profitability index is equal to 17.73 Based on the numerical data, the project should be accepted based on a favorable NPV and an IRR lower than the prevailing cost of capital rate of 7.05%. Nevertheless, it is advisable to do a comparative analysis of the outcomes with other choices prior to concluding. Specifically, the PI states that for each dollar invested, Sunny would get a return of 17.73 dollars. Start-Up Travel Agency and Renting Billboard-option 2 The first year of operations will likely result in a negative cash flow balance due to the initial investment and the gradual impact of the billboard on cash inflows. The numerical values that define this particular situation are: The NPV is $111,024.79. The IRR is 74%. The profitability index is 22.62. The data indicates that the project is economically feasible, as shown by a positive NPV and an IRR that exceeds the actual cost of capital by 7.05%. Specifically, the PI states that for each CAD invested, Sunny would get a return of 22.62 dollars. Start-Up Travel Agency and Buy Billboard- option 3 In this particular case, the net cash flows for year one exhibit a negative value. Upon careful evaluation of the original investment, it becomes evident that Sunny would seek a larger bank loan, resulting in a higher cost of capital of 8%. Indeed, Sunny's financial offer might surpass the bank's highest offer of $25,000. In order to bridge this discrepancy, Sunny may consider obtaining a personal loan, either from family or a friend, since the amount needed is insignificant. In the context of practical application, any prospective personal loan would result

5 in the exact cost of capital at the rate supplied by the bank. The numerical indicators associated with this particular situation include: NPV amounting to $121,689.50 The IRR is 51%. The profitability index is 6.26. The numerical data indicates that the project merits consideration, given that the NPV is positive and the IRR exceeds the current cost of capital of 8%. The PI states that for each unit of currency invested, Sunny would get a net inflow of 6.27 dollars. Start-Up Travel Agency with Partner, Nina- option 4 In this scenario, the initial investment remains relatively modest as he is not financing the billboard. Nevertheless, the subsequent decrease in overall income due to the inclusion of a partner leads to a substantial outflow of cash beyond the first year. In light of this matter, Sunny may need to contemplate the prospect of augmenting the bank loan and using the ensuing cost of capital of 7.05%. The numerical values that represent this particular situation are: The NPV is 78,123.11 CAD. The IRR is 74%. The profitability index is 25.91 CAD/CAD. Once again, the obtained numerical values indicate that the project is feasible since the NPV is positive and the IRR exceeds the actual cost of capital (7.05% in this instance). According to the PI, Sunny will get a net inflow of $25.91 for every dollar invested. Start-Up Travel Agency with Accountant Partner- option 5 The original investment and the net cash withdrawals in the first year do not require significant money. Therefore, the cost of capital examined for this scenario was 7.05%. The

6 decrease in overall income is apparent due to the inclusion of a partner who assumes responsibility for the original investment, the maintenance of the billboard, and the company's accounting. The numerical values that define this particular situation are: The NPV is 98,475.36 CAD. The IRR is 126%. The profitability index is 32.40 CAD/CAD. The numerical data indicates that the project merits consideration, as shown by a positive NPV and an IRR that exceeds the current cost of capital rate of 7.05%. The PI states that for each unit of currency invested, Sunny would get a net inflow of 32.40 dollars. Comparison of the Alternatives Conducting a comparative analysis of the various situations of the start-up agency would be a valuable endeavor to ascertain the best choice among the five alternatives. Finally, the comparison should include the job scenario to decide which choice Sunny should adhere to. Start-Up Summary Investment Capital, Discount Rate, NPV, IRR, and Profitability Index Comparison Table Option 1 2 3 4 5 Start-Up Start-Up with Renting Billboard Start-Up with Buying Billboard Start-Up with Partner Nina Start-Up with Accountant Partner Initial Investment 3136 5136 23136 3136 3136 Cost of Capital 7.05% 7.05% 8.00% 7.05% 7.05% NPV 52474.46 111,024.79 121,689.50 78123.11 98,475.36 IRR 52% 74% 51% 74% 126% Profitability Index 17.73 22.62 6.26 25.91 32.40

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7 The table summarizes the initial funding, the cost of capital under consideration, the NPV, IRR, and profitability index. Considering all the parameters together would enable us to determine the most advantageous project among the five under consideration. In terms of convenience, all five solutions are financially advantageous, as shown by their positive NPVs and much higher IRRs than the cost of capital. Subsequently, one could choose project number (3) because it demonstrates the greatest NPV among all alternatives. When analyzed from an investment standpoint, it becomes evident that project (3) has the most significant level of risk. It is primarily attributed to its substantial initial investment, as shown by the profitability index, which assesses the future net cash flows with the original investment. The greater the value of the PI, the more financially advantageous the investment is, requiring a smaller initial capital outlay. Therefore, Sunny should decide on three choices that include examining several ways. If Sunny expresses concern over the probable loss of his original investment due to the project's possible failure, he should choose option 5, as it has the most excellent profitability index. If Sunny is not concerned about the initial investment amount and the risk of losing his capital due to potential losses, he should choose option 3. This option will generate the highest values for income cash flows in absolute terms. If Sunny desires a compromise between the two circumstances, it would be advisable to choose Project 2 because it offers more significant net cash inflows compared to Project (5) while presenting a lower risk level than Project (3).

8 Comparison Between Cash Flows for the Start-Up Options 2, 3, and 5 with Employment Option. Based on the comparative analysis of the available possibilities, if Sunny's primary priority is maximizing his earnings, it would be advisable for him to forego the start-up opportunities and instead seek part-time employment to supplement his financial resources. This is because the cash inflows generated would be at their highest level from the outset. However, in the context of initiating

9 1 2 3 4 5 6 7 8 9 10 -20000 -10000 0 10000 20000 30000 40000 50000 Cash Flow Comparison Graph Employment Start up 2 start up 3 Start up 5 Year Net Cash Flow a start- up enterprise, it would take many years before attaining the highest potential profit. Nevertheless, regardless of the specific start-up business, Sunny evaluates, the income generated by such ventures will consistently fall below that derived from traditional job options. In addition, it is essential to note that all three start-up choices will have capital outflows in the first year, in addition to any needed investments. However, Sunny needs to consider that the work choice may only provide significant economic advantages in the future if he can get a better- paying position. In the context of the potential start-up, Sunny might enhance the compensation by using various strategies such as implementing marketing campaigns, securing further funding, engaging in strategic planning, expanding the firm to other geographical areas, and pursuing other avenues. Accounting Records Given Sunny's foundational accounting knowledge, it is plausible that he has a rudimentary understanding that commercial activity records are in accounts. Several categories

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10 of accounts are into four distinct classes: assets, liabilities, equity, and outcomes. Subsequently, the five potential resultant accounts exhibit a correlation, as shown by the following relationship: Losses + Assets = Gains + Equity + Liabilities All accounting activities require using accounts associated with one or more specified groups to represent the real-life transactions that occur accurately. Purchasing materials for manufacturing using cash would require the involvement of two accounts under the assets category, namely cash and inventory. Accounting processes use a two-column diary to record transactions, with each operation recorded as a journal entry. The two columns in the journal indicate debits and credits, which are determined based on the type of accounts used to represent actual activity and the events associated with the operation. Consequently, some accounts are debited while others will be credited. Irrespective of the accounts used and the nature of the transactions, it is essential for each journal entry to always adhere to the concept of double entry, wherein the value of debits must always equal to the value of credits. Every entry recorded in the journal must include the relevant accounts, corresponding amounts, registration date, and an optional, concise explanation of the activity. Upon first registration in the journal, it is necessary to fill out a secondary record for each account used promptly. Use a four-column ledger to maintain records, with each account having its own ledger. The first two columns of this ledger are either debit or credit an account following the journal entries. The last two columns maintain a record of the balance of the accounts after the debit and credit transactions and entries. The significance of maintaining records in the journal and the ledger is that these records provide business personnel with a detailed understanding of the firm’s activities and also, the

11 resources used in those operations. Furthermore, the utilization of a ledger enables the entrepreneur to ascertain the balance of individual accounts and get a comprehensive understanding of the overall financial condition of the firm, encompassing aspects such as sales, liquidity, equity, debts, inventory, debtors, sales on credit, risk, and several other pertinent factors. Sunny should regularly document several straightforward transactions in a diary if he decides to establish his firm. This practice will enable him to keep track of all transactions. He incorporates all relevant assets, such as cash, the automobile, the computer, and other pertinent items.  Sales may be made either in the form of cash transactions or via credit transactions.  The financial resources allocated by the company towards marketing activities.  Fulfilling the monthly rental obligation to his parents  Include all relevant information about the billboard, including the original investment, maintenance costs, annual rental fees, and potential purchase options.  Fulfilling the financial obligations associated with monthly utility and service payments  Proceed with the formal registration of the bank loan and subsequent loan installments.  Upon opening the bank account, Sunny can engage in a deposit transaction that requires proper registration.  The process of recording the depreciation of property, plant, and equipment is to be registered.  Record the financial transactions related to payments made by a registered accountant.  Registration costs associated with bank accounts every month.  Registering tax returns and making payments occurs on an annual basis.

12 Financing Methods If Sunny were to establish his own travel agency business, he may need to explore several avenues for securing financial resources. The following items are listed as follows: There needs to be more information on Sunny's economic and financial circumstances; moreover, he is experiencing some difficulties. Nevertheless, if Sunny has personal savings, they could use these funds to support their company venture. Sunny has received a pre-approved credit line from the bank, with the interest rate ranging from 7.05% to 8%, depending on the amount borrowed. If the specified sums were manageable (3000 CAD), one potential solution would be for him to consider requesting a personal loan from a friend or family member. This personal loan may not include a specified interest rate; nevertheless, the borrower may agree to repay a minimum amount equivalent to the bank's requested sum. Sunny can seek out potential partners for investment, offering them a share of the generated income in return. Financing loans are available on the market to help small firms in Canada. The government backs the loans and falls within the Canada Small Business Financing Program (CSBFP) purview. The loan provides a maximum amount of 1,000,000 CAD, with the option to allocate 500,000 CAD towards equipment, intangible assets, leasehold improvements, and working capital (Government of Canada, 2023). Ethics Business ethics is comprehending and adopting the regulations, norms, principles, or guidelines that include ethically upright conduct (Karakowsky & Guriel, 2015). Ethically, individuals comprehend and adhere to societal norms and standards that dictate what is morally acceptable or unacceptable (Sexty, 2020). Making choices within a corporate setting always

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13 involves ethical considerations, and the most effective approach to addressing these concerns is using ethical standards. Actions that align with professional conduct guidelines, laws and regulations, societal norms, company policies, and individual ethics are ethically moral (CPA Canada, 2015). In the scenario about Sunny's employment, he encountered a predicament and contemplated the prospect of providing false information to his supervisor about the vehicle's mileage. If Sunny had employed the personal virtues ethic principle, explicitly focusing on honesty, he would have comprehended that deceiving his boss would be ethically inappropriate. Instead, he should have engaged in a conversation with his boss, endeavoring to identify a resolution while openly sharing his perspectives. Conclusion After a comprehensive study of several potential scenarios available for Sunny to pursue, no one choice stands out as superior to the others. This is because personal preferences may influence the ultimate selection. In this regard, there are certain aspects that Sunny should take into account, which also provide opportunities for further investigation. The first assessment of the part-time employment arrangement may need to be revised due to the low remuneration and the need for Sunny to use his vehicle for job-related tasks. Nevertheless, this part-time employment opportunity serves as a means for Sunny to familiarize himself with the business market, as he will have the opportunity to work alongside a distinguished industry veteran who may provide guidance and impart valuable sector-specific information. Additionally, this experience may provide networking opportunities with other professionals in the area. Moreover, the employment opportunity aligns with his area of academic focus. Additionally, when combined with a second job, the overall potential income,

14 prospects for professional growth, and relatively limited level of responsibilities (compared to starting one's own business) make this a compelling option. Furthermore, Sunny may also want to contemplate embarking on his entrepreneurial venture, as this alternative holds considerable merit. All five potential scenarios for the travel agency demonstrate viability when evaluated from a business investment standpoint. However, after evaluating the potential risk Sunny is ready to undertake and the desired revenue he aims to generate from the firm, he may exclude two of the five potential options for his start-up. The remaining choices include capital withdrawals in the first year and the original outlay. However, over time, the revenues of start-ups are expected to rise steadily. Despite this, none of the choices' revenues are projected to surpass those generated by the employment scenario. By integrating the earnings from both part-time occupations, the start-up project exhibits a burgeoning potential that may be used to augment the start-up's revenue. Another factor that Sunny should consider is the element of time. The initiation of start- up operations often requires a much greater time commitment than being employed, particularly during the first stages of the start-up project. If Sunny considers the importance of maintaining a work-life balance, he needs to know that some job conditions may allow him to better align his activities with his work schedule. However, it is also crucial for Sunny to consider that if the start-up experiences significant growth, entrepreneurship will allow him more autonomy over his schedule than being employed.

15 References Arnold, C., & Hurst, C. (2022, August 29). How much does it cost to own a car? https://www.finder.com/ca/cost-of-car-ownership Avalon (2022). How Much Will Bookkeeping and Accounting Cost for My Small Business? Avalon Accounting. https://www.avalonaccounting.ca/blog/how-much-will- bookkeeping-and-accounting-cost-for-my-small-business City of Vancouver (2023). Get a business license. https://vancouver.ca/doing-business/business- licences.aspx CPA Canada (2015). The CPA Way: 7 - Ethical Behaviour. https://www.cpacanada.ca/-/media/site/become-a-cpa/docs/national-education- resources/en-the-cpa-way-7-ethical-behaviour.pdf? rev=233b5ed521f0478d96c6e9674c1ed1ae&hash=2BB593E72E14834D9A24A86C0A3 2F901 Cris K. O. & Bradley R. M. (2004). Trends in the Property Tax Valuation of Commercial Outdoor Advertising Structures. Journal of Property Tax Assessment and Administration • Volume 1, Issue 2. https://professional.sauder.ubc.ca/re_creditprogram/course_resources/courses/content/ 452/billboard.pdf Government of BC. (2023). Sole proprietorships and partnerships. British Columbia. https://www2.gov.bc.ca/gov/content/employment-business/business/managing-a- business/permits-licences/businesses-incorporated-companies/proprietorships- partnerships#:~:text=Sole%20proprietorships%20and%20partnerships%20have,by %20two%20or%20more%20parties .

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16 Government of Canada. (2023). Canada Small Business Financing Program: Updated and Extended Economic Impact Analysis. https://ised-isde.canada.ca/site/canada-small- business-financing-program/en Karakowsky, L. and Guriel, N. (2015). The Context of Business: Understanding the Canadian Business Environment (1st ed). Pearson. ScotiaBank (2023). Right Size Account for Business. https://www.scotiabank.com/ca/en/small- business/business-banking/business-bank-accounts/right-size-account-for-business.html Scotiabank. (2023). Loans & Lines of credit. https://www.scotiabank.com/ca/en/personal/loans- lines/line-of-credit.html Sexty, R. (2020). Canadian Business & Society: Ethics, Responsibilities, and Sustainability (5th ed.). McGraw Hill Ryerson Limited Szecsei, S. (2022). 27 Start-up Statistics focusing on Canada. https://reviewmoose.ca/blog/startup-statistics/