CASE #3:

FIRST DAY! Its 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 didnt 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 CFOs 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 companys 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) Assets 2021 Liabilities and Owners' Equity 2021 Current Assets Current Liabilities Cash 200 Accounts Payable 400 Accounts Receivable 400 Notes Payable 400 Inventory 600 Total Current Liabilities 800 Total Current Assets 1200 Long-Term Liabilities Long-Term Debt 500 Fixed Assets Total Long-Term Liabilities 500 Net Fixed Assests 800 Owners' Equity Common Stock ($1 Par) 300 Retained Earnings 400 Total Owners' Equity 700 Total Assets 2000 Total Liab. and Owners' Equity 2000 Income Statement ($ in 000s) 2021 Sales 1200 Cost of Goods Sold 900 Taxable Income 300 Taxes 90 Net Income 210 Dividends 70 Addition to Retained