Case Study on Delta Inc
CASE DESCRIPTION
The primary subject matter of this case concerns receivables management. Secondary issues examined include the impact of a client's financial distress on a firm's cashflows; the use financial accounting data to challenge a firm's going concern principle and the formulation of new business strategies when the unexpected happens to a firm. The case is appropriate for first year graduate level. The case is designed to be taught in two class hours and is expected to require five hours of outside preparation by students.
CASE SYNOPSIS
Delta Inc. was formed in 1998 by Thomas Dake and George Roberts. The firm was organized and located in Baltimore, Maryland. It provided brokerage services for a wide range of financial transactions for businesses in the state of Maryland. Delta's strategy was to position itself as a discount broker because it perceived that borrowers' resistance to broker fees was much weaker when the lender paid the fees. Pink Tree Finance, a public company listed on the New York Stock Exchange, was Delta's major business partner. About 60 percent of Delta's receivables were due from Pink Tree. Although Delta regarded new client and lender relationships as opportunities for growth within the brokerage business, it also looked for opportunities in other businesses. As a result, the firm identified the West Baltimore Senior Housing Project as a good investment opportunity.
Delta planned to develop a property on West Baltimore Street into a senior housing facility and commercial spaces. The entire project was estimated to cost $10.5 million. Delta executed the purchase agreement for the existing West Baltimore Street property in September, 2001. In October, 2001, Delta applied to a bank in Baltimore for a commercial loan of $10.5 million to purchase and develop the property. The term sheet provided Delta with 90 days to close the loan transaction. It required a refundable fee of $100,000 on executing the term sheet. Delta
The primary subject matter of this case concerns receivables management. Secondary issues examined include the impact of a client's financial distress on a firm's cashflows; the use financial accounting data to challenge a firm's going concern principle and the formulation of new business strategies when the unexpected happens to a firm. The case is appropriate for first year graduate level. The case is designed to be taught in two class hours and is expected to require five hours of outside preparation by students.
CASE SYNOPSIS
Delta Inc. was formed in 1998 by Thomas Dake and George Roberts. The firm was organized and located in Baltimore, Maryland. It provided brokerage services for a wide range of financial transactions for businesses in the state of Maryland. Delta's strategy was to position itself as a discount broker because it perceived that borrowers' resistance to broker fees was much weaker when the lender paid the fees. Pink Tree Finance, a public company listed on the New York Stock Exchange, was Delta's major business partner. About 60 percent of Delta's receivables were due from Pink Tree. Although Delta regarded new client and lender relationships as opportunities for growth within the brokerage business, it also looked for opportunities in other businesses. As a result, the firm identified the West Baltimore Senior Housing Project as a good investment opportunity.
Delta planned to develop a property on West Baltimore Street into a senior housing facility and commercial spaces. The entire project was estimated to cost $10.5 million. Delta executed the purchase agreement for the existing West Baltimore Street property in September, 2001. In October, 2001, Delta applied to a bank in Baltimore for a commercial loan of $10.5 million to purchase and develop the property. The term sheet provided Delta with 90 days to close the loan transaction. It required a refundable fee of $100,000 on executing the term sheet. Delta