Clarkson Lumber Case Summary

Case 1: Clarkson Lumber As a financial consultant to Clarkson Lumber, I analyzed four potential scenarios with relatively high probabilities of occurring given Clarkson Lumber’s current situation. The four scenarios analyzed are continued rapid growth of Clarkson Lumber with Suburban Bank as the creditor, slowed growth with Suburban Bank as the creditor, continued rapid growth with Northrup Bank as the creditor, and controlled rapid growth with Northrup bank as the creditor. Clarkson Lumber’s first scenario is one of continued rapid growth with Suburban Bank as the creditor and is represented by tables 1, 1.2, and 1.3. Using the most relevant expectation of about five and a half million dollars in 1996 net sales for Clarkson Lumber, as given by Northrup Bank’s investigator along with historical income statement data, I found that an annual growth rate of 22 percent was reasonable this
This scenario assumes an economic slow down and the slow down of the once rapidly growing suburb Clarkson Lumber operates within. Because of the nature of Clarkson Lumber’s repair business the case book mentions; slow growth of five percent would be expected for the company, instead of a flat or negative growth rate. Because of the slow growth rate, the inflator for Clarkson Lumber is set to the inflation rate of four percent, limiting growth rates of variable costs, fixed costs, and capital replacement. Because of the low growth rate, working capital needs will become almost flat and there will be no expansion costs within the foreseeable future. Further, in this scenario I would expect Clarkson Lumber to take advantage of some trade discounts and avoid using payable trade accounts as cash and credit become available while gross debt is paid off, moving the v-factor down to 73.5 percent and the w-factor up to 16.5