Essay about Gone Rural Case Write Up

1057 Words Mar 5th, 2015 5 Pages
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
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If Gone Rural needs to extend credit to its customers, the terms of payment need to be clear and concise. Businesses cannot survive if bank loans are consistently used to finance accounts receivable and customers are paying in seven months time. We believe that Ms. Philippa Thorne will need to stand firm and outline payment terms more in line with standard business practices. By reducing the average collection time of accounts receivable, Gone Rural will have additional cash flow to invest in accounts payable and increased production capacity. Ms. Thorne should seek to increase growth by targeting the customers who are over 60 days past due on payments and be cautious when extending lines of credit.

4. Determine sustainable growth rate (based on 2010 results)

Sustainable growth rate = ROE (year 2010) x (1 - dividend payout ratio) = 156000/108600 = 14.4%

5. Create 5 year projected income statements and critical balance sheet items. You may make assumptions to create these financial statements. State and justify your assumptions.
Income Statement:

Assumptions: (In question 1)

Balance Sheet:

$1M goes straight to PP&E, and is then amortized over 10 years at 2.5% interest rate
No Prepaid/Deferred Taxes, Bank Overdraft, Car Loan, or Other Liabilities
$1M loan is accounted for in L+SE under ‘Shareholder Loans’

6. Does the capital structure impact the growth and

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