Butler Lumber Case Study Analysis Essay Example
Subject: Butler Lumber Company
Problem: Whether Mr. Mark Butler should go ahead with financing from Northrop National Bank or should stay with Suburban National Bank.
Options: 1) Enter into a loan agreement with Northrop National Bank for USD 465,000 (Assumption: The condition to sever the relationship with Suburban National Bank applies to Short Term Loan only) 2) Continue short term lending relationship with Suburban National Bank for USD 250,000 and secure the company’s loan with real property
Recommendation: Given available data, Butler Lumber company should enter into a loan agreement with Northrop National Bank for USD 465,000
Analysis:
Our recommendation to Mr. Mark Butler to enter into agreement with Northrop Bank for line credit of USD 465,000 is based on the following factors:
External Financing Need
We assessed the company’s external financing need in 1991 based on the following scenarios:
a) The current quarter net sales of 1991 attributes 26% of annual sales of company in 1991, since first quarter sales of 1990 contributed 26% of total 1990 net sales and hence the total net sales projected for 1991 is USD 2.77 Mn. Balance Sheet and Income statement have been projected at percentage of sales (Please refer to exhibit no. 1). In this scenario, we assume company doesn’t opt to take discounts on its purchases
b) Net Sales of USD 2.77Mn, company opts to take discounts on its purchases
c) Net sales in 1991 of USD 3.6Mn as indicated by bank’s investigator in the case study
Under both the above scenarios, company would need more financing than its current bank credit facility of USD 250,000.
Under scenario (a), if the company decides not to take discounts, then it would need short term credit facility of USD 211,000 to meet its short term capital
Problem: Whether Mr. Mark Butler should go ahead with financing from Northrop National Bank or should stay with Suburban National Bank.
Options: 1) Enter into a loan agreement with Northrop National Bank for USD 465,000 (Assumption: The condition to sever the relationship with Suburban National Bank applies to Short Term Loan only) 2) Continue short term lending relationship with Suburban National Bank for USD 250,000 and secure the company’s loan with real property
Recommendation: Given available data, Butler Lumber company should enter into a loan agreement with Northrop National Bank for USD 465,000
Analysis:
Our recommendation to Mr. Mark Butler to enter into agreement with Northrop Bank for line credit of USD 465,000 is based on the following factors:
External Financing Need
We assessed the company’s external financing need in 1991 based on the following scenarios:
a) The current quarter net sales of 1991 attributes 26% of annual sales of company in 1991, since first quarter sales of 1990 contributed 26% of total 1990 net sales and hence the total net sales projected for 1991 is USD 2.77 Mn. Balance Sheet and Income statement have been projected at percentage of sales (Please refer to exhibit no. 1). In this scenario, we assume company doesn’t opt to take discounts on its purchases
b) Net Sales of USD 2.77Mn, company opts to take discounts on its purchases
c) Net sales in 1991 of USD 3.6Mn as indicated by bank’s investigator in the case study
Under both the above scenarios, company would need more financing than its current bank credit facility of USD 250,000.
Under scenario (a), if the company decides not to take discounts, then it would need short term credit facility of USD 211,000 to meet its short term capital