Essay Butler Lumber Company

1999 Words Oct 9th, 2014 8 Pages
Group:
Lucas Ghiglione - 260460555
Noah Lackstein - 260524490
Kayley Lankinen - 260534412
Elliot Leimer - 260447577
Noah Seltzer - 260532481
Subject:
Butler Lumber Company

Problem:
The Butler Lumber Company does not have adequate cash on hand to manage their operations, and has become reliant on trade credit and sometimes late payment of accounts payable to manage their cashflow. With sales projected to increase by 25% to 35%, the company must decide whether to accept a larger line of credit from Northrop National Bank.
Options:
Do nothing, and maintain their current loan with Suburban National Bank
Accept the larger loan from Northrop National Bank

Recommendation:
Given the available data, the Butler Lumber Company
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This will eventually deteriorate the relationship and goodwill of the firm with regards to their main suppliers. Although these costs cannot be estimated with the information provided, they could have serious consequences on the operations and profitability of the Butler company. They must therefore be kept in mind when making the financial decision with regards to the short term fund requirements of the firm.
In order to determine those requirements, we calculated the external financing needs based on the 1991 Q1 assets and liabilities, coming out to a total of $166,474 on top of current borrowing situation. This implies that if the Butler company were to go with Northrop National Bank, it would need to borrow the EFN previously calculated, plus the outstanding balance of the Suburban loan at the end of 1991 Q1, amounting to a total of $413,474. In our proforma analysis we will predict both balance sheets and income statements for two potential scenarios: stay with Suburban National Bank and continue to rely on the trade payables extended by suppliers as well as putting up extra collateral, or switch to a new loan with the Northrop National Bank.

Proforma The two scenarios outlined above were then estimated by projecting the income and balance statements using historical percentage of sales and growth rates. In both scenarios, Butler Lumber sales grow at a historical average growth rate of 25.3%.
The financing from the new bank option was to

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