Suggestion as Butler’s financial advisor
Butler Lumber Company is on a growing path. It is evident from the case that the volume has been built due to successful price competition, careful control of operating expenses and purchases at substantial discounts. Even in case of an economic downturn its business is protected to a large extent as 55% of its sales are from the repair market. The company is growing at a good pace of 19%, 34% and 34% for the year 1989, 1990 and 1991 respectively. The data is tabulated below.
% increase in sales of Butler Lumber Company
Expected 1991 1991 first quarter
% Increase NA
18.621096 33.830104 33.63028953
All amounts in $
The company has a considerable amount of debt also which is tabulated below
Current outstanding debts of Butler Lumber Company
Notes Payable, bank
Notes Payable, trade
All amounts in $
As his financial advisor I would suggest Mr. Butler to go for this loan amount. This would help in meeting the expansion and sustaining the growth of his company. Even though the operating expense for 1990 is 658000 and a purchase of 2042000 which is an increase of 34 % and 27.7 % over the previous year, respectively the growth is promising. The amount of $465000 might be needed in chunks and would help him repay a substantial amount of his debt.
Suggestion as a banker
As a banker I won’t sanction him this loan due to following reasons.
As mentioned in the case, “The maximum loan that Suburban National Bank would make to any one borrower was $250000,and Butler Lumber had been able to stay within this limit only by relying heavily on trade credit”. The company required…...