By adding another an experienced salesman that is working for a base salary plus commission, they can grow the revenues even more. So it is strategically important for him to have access to this capital because of the nature of his cyclical business.
It would be bounded by the negative covenants imposed by the new bank. If the company remains with the existing bank loan, the total interest expenses are projected to increase by USD 7, in and resulting into after-tax net profit USD 49, with loan from existing bank.
Largely due to his increased sales our forecast shows that under the same cost assumptions for operating expense and COGS, as well as same levels of ending inventory in relation to sales, Mr. If the company replaces its short term line of credit from its existing bank to new bank, the total interest expenses are projected to increase by USD 11, inhowever company will be able to earn discounts of USD 27, resulting into after-tax net profit of USD 61, with new loan as compared to after-tax net profit of USD 49, with loan from existing bank.
The cash cycle rises significantly due to the combined effect of increase in inventory and receivables period and decrease in payable. Unlike scenario aprofitability improves in a consistent way: We know that his wife has a half interest in the house, which is worth about 55, that tell us the entire equity position in the house is aboutBut the net impact to the BLC will be positive.
Mark Butler to enter into agreement with Northrop Bank for line credit of USDis based on the following factors: Butler will have to make some personal sacrifices, though they likely will reimburse themselves in the future because he is making more money then he ever did and that is likely to continue.
Butlers financial advisor, I would advise him to take the loan in an attempt to grow the business. These profitability ratios indicate a better result by taking up the new loan than staying with the old bank.
I would advise Mr. Our recommendation to Mr. Butler Lumber Company It seems to us that Butler has a decision to make. Butler will have a profit of about 46, after taxes.
The effect of the discount income has driven the profitability, which in turn reflected also in the ROE and ROA ratios. While projecting the income statement we assumed that the interest for the year would be comprised of the new loan interest assume they need the whole amount at At first glance, seems that the firm is able to cover current liabilities with current assets, but, without the inventory which takes more time to convert into cashthe situation is completely different.
As the banker, would you approve Mr.
Finally to bring him up to date on his trade credits he needed to pay anotherThe cash cycle increases from 64 to While forecasting the assets part of the balance sheet we saw that Mr. We are going to assume that he lowers his accounts payable to that amount. The margins are not great for this industry, and BLC is no exception.
As the banker, I would not grant a LOC or any other type of loan this size. The sales amount for the year of are going to be assumed at 3, while relying on banks estimate. This will facilitate the maintenance of the net working capital even in a general economic downturn stage.
The company becomes less flexible in its managerial decisions by taking up the new loan. Butler needs to bring his accounts payable closer to reality, as we specified before to a level equal to 10 days of purchases. If Butler Lumber stays with the old bank we can observe a constant value, from tofor net working capital, current and quick ratio.
That meant a reduction fromearly level to 74, which was about ,Report abuse. Transcript of Butler Lumber Company. Butler Lumber Company As an Adviser for Mr. Butler Encourage him to take the line of credit if offered by Northrop National Bank The company is growing rapidly and needs a source that is sufficient enough to meet the growing needs.
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Butler Lumber Company is a Pacific Northwest based lumber distributor that sells plywood, moldings, and sash and door products. Butler Lumber Company Case Solution,Butler Lumber Company Case Analysis, Butler Lumber Company Case Study Solution, PERFORMANCE OF BUTLER LUMBER: The performance of the company is analyzed by calculating several different factors that is Ratio analysis, Common Size Analy.
Butler Lumber Case Study Solution: Case Study Objective: As Mr.
Butler’s financial advisor, would you give urge him to go ahead with, or reconsider, his anticipated company, BLC is on pace for another dismal year of net income in the high $40k. The net income for this company has been constant.Download