Butler Lumber

In: Business and Management

Submitted By raybaldwin
Words 478
Pages 2
3. In order to choose between trade credit and a bank loan as a source of funds, Mr. Butler needs to determine if he can pay the supplier offering trade credit within the agreed upon time frame. If he is unable to make the payment to his suppliers on time, then he should choose bank loans. This decision should be based upon Mr. Butler’s ability to cover the full amount he owns within the 30 day period given by his supplier, and if possible to pay within the 10 day period in order to receive the 2% discount.

4. As Mr. Wilson’s advisor, I would suggest that he follow through with his anticipated expansion using additional debt financing. Butler Lumber has excellent potential to continue growth, as we can see by their constantly increasing sales, however, due to constraints with their current debt policy, there is a very significant cash flow issue. With this loan Mr. Wilson will be able to fully pay off the loan to his former partner, which is currently being paid at $7,000 annually plus 11% interest. Also, with this loan he would have enough cash to fund the growth of his company, which he is currently struggling to be able to do, as well as being able to have enough cash on hand to pay off his accounts payable in 10 days in order to get the 2% discount. If he is able to use this new source of financing to take care of the current long term debt weighing his cash flow and growth down, as well as gaining the 2% discount on accounts payable, he will be able to stimulate and support continued growth.

5. As the banker, I would approve the loan to Mr. Wilson under certain conditions. Butler Lumber Company has a strong history at paying their loans on time. It is also clear to see that the company is currently profitable and has a very solid potential to grow, however, their current debt management is causing them to worsen their financial position annually. When…...

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