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I need some assistance with these assignment. financial management: analysis of butler lumber company Thank you in advance for the help!
I need some assistance with these assignment. financial management: analysis of butler lumber company Thank you in advance for the help! Despite a loan with Suburban Bank, Mr. Butler, the company head, sought to apply for a bigger amount of loan which his present bank could not give and decided to negotiate for that amount with Northrop National Bank for the amount of $465,000. The problem was that the company lacked enough liquidity and solvency despite stable and rising sales. The writer attempted to derive the appropriate amount of loan at the projected sales level of $3,600.00, using two approaches based on the asset levels underpinning sales. An attempt was made also to determine the impact of reducing operating expenses, mainly by decreasing the salaries and perks of the company head, on profitability, and therefore on the ability of the company to pay for its current obligations.
The study also explored the financing alternatives that Mr. Butler could explore in case he failed to qualify for the loan or in case he was not amenable to the restrictive terms and conditions that Northrop National Bank would impose for its own protection. This included finding an appropriate capital structure consisting of new quality infusion from venture financiers or a combination of long-term debt and equity so that there would not be so much pressure on the company to pay short-term debts that it would otherwise need to support continuing operations for long-run profitability.
Butler Lumber Company engages in the retail distribution of lumber products in a large city in the Pacific Northwest. Owned and managed by Mark Butler, the company was incorporated in 1988 after Mr. Butler acquired the interests of his son-in-law for $105,000 which he financed with a long-term loan in the sum of $70,000. The company achieved rapid sales growth since 1986, chalking up more than 50 percent growth per year in the first two years but falling to 18 percent and 34 percent in 1989 and 1990. To finance the growth in his business, Mr. Butler borrowed $247,000 from Suburban National Bank beginning in 1989.
