Gone Rural Case Write Up

Topics: Balance sheet, Accounts receivable, Generally Accepted Accounting Principles Pages: 4 (1041 words) Published: February 17, 2015
Gone Rural Case Write-Up

1. How would you advise Ms. Thorne concerning growing her organization, being financially viable and achieving her mission?

In order to grow her organization, our group advises that Ms. Thorne invest a total of R1 million in new additional facilities to double the operating capacity of the company. In order to grow the company and expand into foreign markets, the company needs to build another facility. It was made clear that the limiting factor in production is not the number of people, rather it is the fact that the old facilities have been outgrown. The way our group advises funding the building would be through debt. Using equity to finance the deal would likely mean giving up part of the company and board positions to the equity investors. This could result in loss of control, and Thorne’s mission of caring for the people of Swaziland could be stifled; it is probable that the equity investors would pressure Thorne to halt donations to the nonprofit foundation boMake. Raising debt through the bank would mean terms that are unfavorable to Thorne.

Instead, our group advises Thorne to approach the Thorne family trust for a loan of R1 million if possible. Based on historical loans made by the trust, Thorne would receive more favorable terms on a loan from the foundation than a bank. We advise Thorne to negotiate a loan with a 2.5% interest rate. The loan principle should be paid off over 10 years in equal payments of R100 thousand. The loan should be used to build the new facilities during year 2011. During year 2011, the revenues and costs should continue to grow at the sustainable growth rate. After year 2011, once the facilities are built, we expect that sales should grow each year by a minimum of 20% for at least four years. The new capacity will allow the company to penetrate new markets. Also, the new capacity will allow her hire 10 additional producers each year. These assumptions are used to build the...
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