CASE 13-6 BUTLER LUMBER COMPANY* Question 1 How well is Butler Lumber doing? Despite recording a tremendous growth in revenue as follows: 2009: 18.62% 2010: 33.83% 2011: 6.61% (on annualised basis) The profitability of Butler Lumber is on declining trend. | |2008 |2009 |2010 |1Q 2011 | |Gross Profit Margin |27.99% |28.61% |27.62% |27.30%
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Case Study: Capital Budgeting Butler Lumber Company Abstract Butler Lumber Company‚ a lumber retailer with a rapid growth rate‚ is faced with the problem of cash flow shortage. In order to support this profitable business‚ BLC needs a great amount of cash. The loan of $250‚000 from Suburban National and a line of credit of up to $465‚000 from Northrop National Bank are the two choices provided. After a brief review of the operation and financial conditions of BLC‚ we first make analysis of
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Butler Lumber 1. Why does BL need to borrow money to support its profitable business? Draw up a Fund Flow Statement‚ i.e.‚ Funding and Uses a. Funding would include Bank Borrowing‚ Trade Credit‚ Retained Earnings‚ Cash‚ Accrued Expenses b. Uses would include Inventories‚ A/R‚ Buyout‚ Reduction in debt‚ increase in fixed assets/accounts Response: BL needs to borrow money from the bank to take benefit of the purchase discounts. During the last two years‚ BL had taken very few purchase discounts
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The maximum loan that the Butler Lumber Company (BLC) could obtain from Suburban National was $250‚000 in which his property would be used to secure the loan. Northrop National Bank offered BLC a line of credit of up to $465‚000. BLC would have to sever ties with Suburban National if they were to have this LOC extended to them. As Mr. Butlers financial advisor‚ I would advise him to take the loan in an attempt to grow the business. One alarming fact about his business is the lack
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and concepts that your team should address: 1. Why has Clarkson Lumber Company borrowed increasing amounts despite its consistent profitability? In order for Clarkson to keep up with an increase in sales‚ they need to borrow additional funds to increase their purchase order sizes. 2. How has Mr. Clarkson met the financing needs of the company during the period 1993 through 1995? Has the financial strength of Clarkson Lumber improved or deteriorated? During the last 3 years‚ Clarkson has
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Clarkson Lumber Company 1. Why has Clarkson Lumber borrowed increasing amounts despite its consistent profitability ? Clarkson’s business is growth with average Net Sales 24.50% from year 1993 to year 1995. The Net Sales Q1 year 1996 is achieved 23.50% of Net Sales year 1995. To achieve the target Net Sales year 1996‚ Clarkson should borrow the Loan from other Bank. If not‚ the estimation of achievement Net Sales year 1996 is 4 times of Net Sales Q1 year 1996 or decrease -6.00% of Net Sales
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1. Why does Mr. Butler have to borrow so much money to support this profitable business? The company faces a shortage of cash. Liquidity of the company is bad. (Liquidity = liquidity asset / liquidity liabilities) Cash (=$31K) / Short-term liability (=$404K) Don’t have enough funds available to meet the expected sales target 2. Do you agree with his estimate of the company’s loan requirements? How much will he need to borrow to finance his expected expansion in sales (assume
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business: Dawson Lumber Company Nature of the business: Wholesale Lumber Business Marketing Analysis: The Dawson Lumber Company was founded in the 1870s by the Dawson family to market the lumber on their land. In 1950‚ Dawson Lumber owned four small lumber yards in the Corn wall area‚ each operating as a separate company. However‚ in 1965‚ J.H. Dawson became president and amalgamated the four companies into the Dawson Lumber Company. The company had acquired seven more lumber yards north and
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Clarkson Lumber Company Dishaun Aboulatifa‚ Ryan Domingo‚ Nathan Lugo‚ Erika Villaneda‚ and Heather Williams California State University‚ Los Angeles The Clarkson Lumber Company was established in 1981 which began as a partnership amongst Keith Clarkson and his brother-in-law Henry Holtz. The Lumber Company was located in the Pacific Northwest in a large city in a growing suburb. The company is known for their distribution of lumber goods in the local area‚ where they have access to railroads
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SUMMARY Date: 1/29/12 Case Title: Clarkson Lumber Company (CLC) (1) Background: CLC was founded in 1981 by Mr. Clarkson and brother-in-law Henry Holtz in the Pacific Northwest. The company has experienced rapid growth over the recent years and it is anticipated to continue. Mr. Clarkson bought out Mr. Holtz for $200‚000 to become the sole owner. This resulted in the need of more cash inflow from the bank. Even with consistent profits‚ the company has suffered a shortage of cash and has
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