Wilson Lumber Company Case
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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.
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