The accountant for Palmer Limited, a sheet metal sub-contractor, has been asked to provide a monthly cash budget along with the projected income statement and balance sheet for her client. The request came about because the banker is concerned about whether Palmer Limited can repay its loan.
The president of a new hotel venture faces a financing decision. The choices include: mortgage debt, common stock, or preferred and common stock. The president has to balance the impact of the financing alternatives on the viability of the venture, her investment returns, the investment returns of prospective outside investors and the financial and business risks.
The owner of a metal furniture manufacturing company is seeking funds to help finance his firm's expansion. He has arranged a mortgage with a life insurance firm to finance the addition to his plant. He is now trying to arrange a working capital loan with his bank manager. There were heavy pressures on manufacturers of metal furniture in recent years and the cost/price squeeze has forced out many weaker manufacturers. Talich Fabricating Inc. survived due to the managerial competence of the owner who anticipates a big sales increase, since the number of competitors has decreased considerably. He believes that this decreased pressure will enable him to increase prices to improve his profitability, which has suffered during the industry shake-out. The loan proposal must be evaluated by the bank manager in view of a head office memo suggesting the loans be limited to proposals offering the highest return with the least risk. As the bank manager, students should evaluate the loan proposal considering the character of the owner/manager, business conditions, capacity to repay, and available collateral. Talich Fabricating Inc. is a complex case, and should be used near the end of an introductory finance segment.
A machine tools distributor is planning to build an extension onto its warehouse. The owner is concerned how to source the $100,000 required to finance the expansion. Options include borrowing from a bank, borrowing from a private lender, or issuing shares. This case is intended to introduce students to financial analysis. The concepts of ratio analysis, projected statements and debt repayment are central to the case. The case requires students to draft a set of projected statements to determine the amount of required financing, assess the financial health of the company and its ability to take on more debt.
Dawson Lumber Company, experiencing rapid growth in the mid-1990s, has requested a $10.8 million working capital loan from the National Bank of Canada. This loan request is based on the assumption that Dawson's growth will continue at an increasing rate. The vice president of the bank must analyze Dawson's performance and give a reply. This case is a good vehicle to reinforce or introduce financial analysis. It synthesizes the relationship between ratio analysis and projected financial statement development. It also presents an interesting perspective in which the bank must balance risk with the effort it extended to acquire Dawson as a client.
The president and general manager of Township Motors, a franchised dealership, was considering two proposals for a new body shop facility. He has to decide whether to accept a loan at 15 per cent interest for ten years, or to lease the building and land for a ten-year period, with payment at year end.
One year after opening a gift shop, a young entrepreneur reviews his results. This exercise requires students to record the business transactions and necessary adjusting entries for the year, and prepare an income statement and balance sheet. This is an introductory transaction analysis case for an introductory finance course.
The treasurer of Nortex, a clothing manufacturer and retailer, has been asked to determine Nortex's cost of capital. This will be used in evaluating the merits of future capital expenditures. A follow-up case with the same name (product 9A87B015) is available.
The president and general manager of a franchised automobile dealership investigates a capital expenditure for a new body shop to replace a smaller, leased facility. The case is designed to test students on their knowledge of capital expenditure analysis, to underline the impact that inflation adjustments have on capital expenditure analysis, and to push students to make judgements on the key analytical figures that may have an impact on the net present value calculation.