CASE #3: FIRST DAY! It's the first day at your new job. A few weeks ago, you interviewed with Widget Surplus Inc., a multinational corporation based in Canada, with its head office in your hometown and you were successful in being offered the role of Finance Manager. After accepting and completing your two weeks' notice with your previous employer, you are all set to start... When you arrive at the office, you see that the atmosphere is chaotic. As the Human Resource Coordinator greets you and sits you in your new office, he mentions that the CFO (with whom you had interviewed with) quit the previous week and that the President of the company wanted to meet with you first thing this morning. The President walks into your office shortly after and she explains that the CFO left suddenly and without notice but mentioned that it was due to some financial concerns for the company, related to liquidity and solvency. She didn't understand because the company was profitable last year and wanted you to investigate it immediately. She provides with you the most recent statements (Exhibit 1) and says the company is expecting 25% growth this year, furthering her confusion about the CFO's comments. Her and the CFO recently met with their commercial bank about securing an operating line of credit (short term financing) that would see them pay annual interest of 3% on any overdraft balance throughout the year. The bank stated that the operating line was contingent on the company maintaining the following covenants: a debt-to-equity ratio of no more than 1:1, collection of accounts receivable of no greater than 60 days and inventory turnover of no greater than 180 days. The other option for the company was a term loan of 60 months with 6.5% interest, but the bank wanted to see projected financial statements for the year incorporating the expected growth as well as a calculation of external financing needed (EFN), which were not completed before the CFO left. The President also wondered what other options existed to raise capital if neither scenario was appealing or possible. Finally, the President mentioned the procurement team was currently dealing with a supply chain problem; the vendor that supplies all the company's inventory/material has been shutdown for an undisclosed amount of time. They have found another supplier, but it is in the USA. The cost per unit is the same but will now be in USD instead of CAD. The President wanted to understand what exposure this created for the company and what options existed to help mitigate that risk. CASE ANALYSIS As the President leaves your office, you wonder if you have made a huge mistake! However, as a Cambrian College graduate, you are prepared to handle such a challenge and you decide to get started on providing the analysis and answers the President requires. You send a meeting invite out for later that afternoon to go over your preliminary analysis based on the information you have, grab yourself a large coffee, and begin to find a solution... EXHIBIT 1 Balance Sheet ($ in 000s) Income Statement ($ in 000s) Assets 2021 2021 Current Assets Cash 200 400 Accounts Receivable 400 400 Inventory 600 800 Total Current Assets 1200 500 Fixed Assets 500 Net Fixed Assests 800 300 400 700 Total Assets 2000 2000 Liabilities and Owners' Equity Current Liabilities Accounts Payable Notes Payable Total Current Liabilities Long-Term Liabilities Long-Term Debt Total Long-Term Liabilities Owners' Equity Common Stock ($1 Par) Retained Earnings Total Owners' Equity Total Liab. and Owners' Equity Sales Cost of Goods Sold Taxable Income Taxes Net Income Dividends Addition to Retained Earnings 2021 1200 900 300 90 210 70 140