Part of The Student Room Group

  • Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

Wilson Lumber Company Case

Extracts from this document...

Introduction

Executive Summary Wilson Lumber Company is experiencing financing problems as it can no longer keep up with its own sales growth. With the expectation of P 2.5 million in sales for the following year, the company is in need of more funds. The company can choose to establish a new line of credit with the Northrup bank and have access to $325,000 as a revolving credit line, however this would mean severing its relationship with its present bank, the Suburban National Bank. Wilson Lumber Company should pursue the loan as it would help them support their funding requirements for 1985. However, that alone is not enough to support their expected sales of 2.5 million. As their sales growth has experienced such tremendous increases, they should consider slowing down and stabilizing their capital structure as too much growth is putting a strain in their finances. As the funds needed for the sales of P2.5 million cannot be supported, the company should opt for a much lesser growth rate that would help the company ease their funding needs while still making efficient use of the loan from the Northrup Bank. Case Context Wilson Lumber Company experienced growth in its business the past three years (1982-1984). ...read more.

Middle

16027.1 7290.52 6803.96 6317.41 7754.25 7356.16 6958.07 -1690 Minimum Cash balance 20000 20000 20000 20000 20000 20000 20000 20000 20000 20000 20000 20000 Excess Cash 6219.75 5821.66 0 0 0 0 0 0 0 0 0 0 Required Financing 0 0 2999.82 3486.38 3972.93 12709.5 13196 13682.6 12245.8 12643.8 13041.9 21690 Total Required Financing 109668.79 Cash Budget (2.091 million sales) January February March April May June July August September October November December Cash Receipts Sales 156825 156825 191675 191675 191675 191675 191675 191675 156825 156825 156825 156825 A/R Lagged 1 month 222000 156825 156825 191675 191675 191675 191675 191675 191675 156825 156825 156825 Receipts from loan 10000 Total Cash receipts 222000 156825 166825 191675 191675 191675 191675 191675 191675 156825 156825 156825 Cash disbursements Purchases 118867.4 118867.4 145282.3 145282.3 145282.3 145282.3 145282.3 145282.3 118867.4 118867.4 118867.4 118867.4 A/P Lagged 1 month 179000 118867.4 118867.4 145282.3 145282.3 145282.3 145282.3 145282.3 145282.3 118867.4 118867.4 118867.4 Operating expense 38290.61 38290.61 46799.63 46799.63 46799.63 46799.63 46799.63 46799.63 38290.61 38290.61 38290.61 38290.61 Interest expense 7000 7000 7000 7000 Loan Payment Mortgage 1250 1250 1250 1250 Total Cash disbursements 217290.6 157158 173917 192082 192082 200332 192082 192082 191822.9 157158 157158 165408 Net Cash Flow 4709.395 -332.962 -7091.99 -406.953 -406.953 -8656.95 -406.953 -406.953 -147.93 -332.962 -332.962 -8582.96 Beginning Cash 29000 ...read more.

Conclusion

However, that alone is not enough to support their expected sales of 2.5 million. As their sales growth has experienced such tremendous increases, they should consider slowing down and stabilizing their capital structure as too much growth is putting a strain in their finances. Justification * Should Wilson Lumber Company pursue their expected sales of P2.5 million, they would need about P387,473.46 in funds, but they have access to P325,000 only. The company has been experiencing more than 30% growth in net sales per year, but as they can no longer support this growth, they should consider slowing down. * As they have only P325,000 in funds, they could consider opting for the growth rate and amount of sales that can be supported by this figure. * By accepting an 11% growth rate for 1985, the company would now have a projected P2,091,000 and funding requirements of P 324,000, which can now be supported by their loan from Northrup National Bank. Implementation * Accept Northrup Bank's offer or revolving credit line. * Take discounts as its cost of giving up is higher than the financing cost. * Slow down th * * e sales growth of the company. ?? ?? ?? ?? Wilson Lumber Company ...read more.

The above preview is unformatted text

This student written piece of work is one of many that can be found in our GCSE Accounting & Finance section.

Found what you're looking for?

  • Start learning 29% faster today
  • 150,000+ documents available
  • Just £6.99 a month

or


Not the one? Search for your essay title...
  • Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

See related essaysSee related essays

Related GCSE Accounting & Finance essays

  1. Hampton Machine Tools Company Case

    Cash budget with both loans due on Dec. 1979 as requested by the company September October November December Cash receipts A/R from Sales minus Cash advance 1323 779 1604 2265 Collections of A/R 684 1323 779 1604 Loan proceeds 350 Total Receipts 684 1673 779 1604 Cash disbursements Interest on

  2. Comsat case

    Finding a company that has a comparable bond rating will provide insight as to the amount of debt to be used. Companies with matching bond ratings reflect similar financial risk. Since it is financial risk that drives default, marketability, and liquidity risk premiums, this makes an appropriate comparable an adequate predictor of the actual costs of debt expected.

  1. Personal budget

    You can use this loan to buy a new car, replace your existing car or to buy a second car. With this loan you would be able to have free insurance cover against your car. Platinum loan. With this platinum loan you can get almost anything you want, You can

  2. Free essay

    planning personal finances

    amount deducted from it * company name * date tax code * employee name * net pay Example of a pay slip above An invoice is basically like a receipt. It's a bill written by a seller of goods or services and given to the purchaser.

  1. Complete Report on Askari Commercial Bank

    Legal Affairs Department The legal affairs department (LAD) is responsible for effectively managing all legal matters pertaining to the bank, and to protect the bank's and trusts in this regard in order to achieve the above, the functions performed by LAD cover a white spectrum: rendering opinions on applicable

  2. Financial Analysis of Matalan PLC

    Disclosure of accounting policies is essential to the fair presentation of financial accounts. Validity of the Information: * The information is backward looking. Most users are concerned with the future. * There is a tendency in financial accounting for increased complexity.

  1. Identifying and describing the main financial service needs for a student starting at university

    you pay off what you owe in full each month > Automatic insurance, on most major purchases made with your Halifax Credit Card for 100 days, against theft and accidental damage > A 10% discount on Halifax Car Insurance premiums when you take out a new policy and use your Halifax Credit Card to pay the premium.

  2. This report has been produced as evidence for Unit 9 - 'Financial Services' - ...

    70 70 70 70 Shopping 1,200 1,200 1,200 1,200 1,200 1,200 Phone 50 50 50 50 50 50 Water/Gas/Electricity 150 150 150 150 150 150 Total expenses 2166.70 2166.70 2166.70 2166.70 2166.70 2166.70 Closing Balance 7,220.10 8,394.40 9,568.70 10,743.00 11,917.30 13,091.60 Fixed rate account Company Account Notice or Term Deposit

  • Over 160,000 pieces
    of student written work
  • Annotated by
    experienced teachers
  • Ideas and feedback to
    improve your own work