Cartwright Lumber Company Case Study

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Register to read the introduction… The two men had tentatively discussed the possibility that Northrop
Bank might extend a line of credit to Cartwright Lumber up to a maximum amount of $465,000.
Cartwright thought that a loan of this size would more than meet his foreseeable needs, but he was eager for the flexibility that a line of credit of this size would provide. After this discussion, Dodge had arranged for the credit department of Northrop National Bank to investigate Mark Cartwright and his company.
The Cartwright Lumber Company had been founded in 1994 as a partnership by Mark Cartwright and his brother-in-law Henry Stark. In 2001 Cartwright bought out Stark’s interest for $105,000 and incorporated the business. Stark had taken a note for $105,000, to be paid off in 2002, to give
Cartwright time to arrange for the financing necessary to make the payment of $105,000 to him. The major portion of the funds needed for this payment was raised by a loan of $70,000 negotiated in late
2001. This loan was secured by land and buildings, carried an interest rate of 11%, and was repayable in quarterly installments at the rate of $7,000 a year over the next 10 years.
The business was located in a growing suburb of a large city in the Pacific Northwest.
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Cartwright Lumber Company

through September. No sales representatives were employed, orders being taken exclusively over the telephone. Annual sales of $1,697,000 in 2001, $2,013,000 in 2002, and $2,694,000 in 2003 yielded aftertax profits of $31,000 in 2001, $34,000 in 2002, and $44,000 in 2003.1 (Operating statements for the years 2001–2003 and for the three months ending March 31, 2004, are given in Exhibit 1.)
Mark Cartwright was an energetic man, 39 years of age, who worked long hours on the job. He was helped by an assistant who, in the words of the investigator for Northrop National Bank, “has been doing and can do about everything that Cartwright does in the organization.” Other employees numbered 10 in early 2004, five of whom worked in the yard and drove trucks and five of whom assisted in the office and in sales.
As part of its customary investigation of prospective borrowers, Northrop National Bank sent inquiries concerning Mark Cartwright to a number of firms that had business dealings with him. The manager of one of his large suppliers, the Barker Company, wrote in

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