In early 2020, Parsa, a dentist, and his wife, Asia, a digital marketing specialist, relocated to Vancouver, BC. Shortly after the move, Asia, a digital marketing specialist, obtained a full-time job with a private company at Burnaby. Parsa, a dentist, obtained his dentistry degree from the university of his home country several years ago. He has recently spent a lot of time studying for the reciprocity examination administered by the Canadian National Dental Examining Board (NDEB), enabling him to practice dentistry in Canada. Last summer, Parsa passed all exams. He has now approached you as a financial advisor and seek advice on establishing his dental practice. It is October 1st, 2023. You are meeting with Parsa and Asia to discuss their plans. Parsa: Thank you for your assistance. Now that I am licensed to practice in Canada, BC province, we aim to establish my dental practice as soon as possible, hopefully by the beginning of 2024. Asia: I plan to assist Parsa with the administrative side, leveraging my prior experience. My income as a digital marketer covers our basic living expenses, excluding future mortgage payments. However, we intend to buy a house in North Vancouver, taking on a substantial mortgage. Parsas BC dental certification allows us a $1 million loan for any type of house. Our goal is to pay it off quickly to save for our retirement. We turned 45 this year, and both plans to retire by 65, promoting our desire to start planning and saving promptly. Parsa: A colleague connected us with an agent in Vancouver helping retiring dentists sell their practices. The agent has already found a suitable practice, Dr. Daniel Paredes practice located in North Vancouver and he currently runs it. The agent has given us two years of financial statements for Dr. Paredess practice, as well as highlights of the business (Exhibits I). We have some savings set aside, and the agent has indicated that Dr. Paredes is willing to offer $800,000 purchase price. I made some notes from our discussion with the agent (Exhibit II) and some notes from my personal research (Exhibit III). Asia: I prefer Parsa set up his own practice and build up his client base. Parsa already spoke with one of the local dentists in North Vancouver who helped mentor him through the NDEB exams, and he gave us some estimates of how much it would cost to start our own practice (Exhibit IV). Alternatively, Parsa could work as a dental associate in other clinics. I searched and found that average annul salary for a dental associate is $100,000. Parsa: I have a specialization in implant and surgery dentistry, an area of increasing patient demand. If I have my own practice, I would like to offer these services to my patients. My estimation is 60% of gross margin on implant and surgery services. Asia: Ive heard that professionals these days incorporate to take advantage of lower tax rates. Average tax rate for small corporation is about 10% in BC. How should we set up the practice to generate the best tax savings? What are other benefits of incorporating the business? EXHIBIT I: DR. PAREDES FINANCIAL STATEMENTS As of December 31($000s) 2021 2022 Cash $12.5 $20 Accounts receivable 25 32.5 Medical supplies 15 18.5 Capital assets (Note 1) 551 509 Total assets $ 603.5 $ 580 Accounts payable and accrued 50 85 Due to Dr. Paderes (Note 2) 300 220 Proprietor's capital 250.5 275 Total liabilities and proprietor's capital $ 603.5 $ 580 Dental service revenue $ 785 $832 Advertising 12 15 Licenses and insurance 50 54 Medical supplies 195 210 Internet and software 15 14 Professional fees (Note 3) 9 10 Rent 84 88 Salaries (Note 4) 248 277 Utilities 15 18 Entertainment and meal (Note 5) 14 15.5 Interest expense 8 6 Depreciation 50 42 Total expenses 700 749.5 Net income $ 85 $ 82.5 DR. Daniel Paderes Inc. FINANCIAL STATEMENT NOTES The financial statements are provided each year-end by Dr. Paredess accountant for the filing of his income tax returns. 1. Capital assets are net of accumulated depreciation, and include all dental equipment, furniture, and fixtures in the office; these assets have an average useful life of 10 years. 2. Due to Dr Paderes, consist of previous unpaid bonuses and other personal loan given to the business by Dr Paderes. 3. Professional fees are for legal and accounting services. In 2022, Dr Paredes has paid his personal legal expense for 3K from the business account as he has the same lawyer for his personal issues. 4. Dr. Parades draws a salary of $120,000 per year from the practice. Salaries expense includes the hygienist salary of $65,000 and receptionist for 45,000 annually plus all government remittances, employee health plan coverage, and bonuses. 5. Meal and entertainment include three events for all staff. Each year, there is at least 10k of Dr. Paderes personal expenses that have been paid by the business account. 6. Dr Paredes usually withdraw 40K annually as his dividend at the year-end. 2. Analyze the financing options from RBC and TD Bank: RBC Financing: Loan Amount: 80% of the sale price. Terms: Fixed-term, 9% interest per annum, 10-year period. Due: December 31 each year. TD Bank Financing: Loan Amount: 75% of the sale price. Terms: Fixed-term, 7.5% interest per annum, 20-year period. Due: December 31 each year. Requires a personal guarantee from Parsa and Asia. Both options provide viable financing, with RBC offering a shorter repayment term but higher interest, while TD Bank provides a longer time with a lower interest rate. 3. Estimate the costs associated with starting a new practice: Equipment Costs: New furniture and equipment: $500,000. Leasing option: 10 years at a 10% interest rate. Advertising and Patient Referral Incentives: Initial annual expense: $20,000. Revenue and Patient Growth: Average annual income per patient: $1,300. Expected 300 new patients in the first year, with a 10% growth rate. Operating Expenses: Monthly rent: $10,000 with a 3% annual increase. Salaries: Receptionist ($60,000), hygienist ($40,000), Parsa ($120,000). Additional revenue from implant procedures: $2,000 per patient. Financially, acquiring Dr. Paredes' practice appears stable, with positive trends in cash flow and patient revenue. The financing options from RBC and TD Bank provide flexibility, each with its own set of terms. Starting a new practice involves significant upfront costs, but the revenue projections and cost estimates suggest a potential for profitability by the third year. Conclusion: After a comprehensive analysis of the available information, including financial statements, financing options, retirement planning, tax implications, and risk assessments, Parsa and Asia must make an informed decision based on their priorities and long-term goals. Could you prepare a cash flow projection for both scenarios over the next 5 years individually in excel sheet format please