Case Link Qunition (5) Directions: Click the "Case link displayed above and use the information provided in Hearth and Home Parts And Blower that union The management of Health and Home provides you with the following projections of her in oos for the three years: 2014. 54,600, 2075 55.8002076-57,400 Based on historical results, how would you characterize the assumptions used in making the prociona O Conservative projected sales growth is below historical levels Plausible projected sales growth is ator near historical levels Plausible-projected sales growth is slightly above historical levels, but achlovable Aggressive - projected sales growth is considerably above historical levels Hearth and Home Part A Company Information Hearth and Home Hells, installs, and services residential fireplaces. Formed 22 years ago by len Wilkinson as a retailer of fireplaces and accessories, the company installed virtually all of the fireplaces is sold and guaranteed is work for 10 years. The company balta ssputation for prompt quality workmanship and gradually, starting six years ago, several of the area's leading contractors begin to subcontract chimney and fireplace installation to canch and Home During its early years, most of the company's sales took place from October to March. Asit expanded, subcontracting sales occurred throughout the year, though shghtly more in the summer mooth Sales are now fairly evenly divided between tail and subcontracting The Wilkinsons have financed the company with long-term debt. The family has provided term loans totaling $350,000, and your organation has pended and in long-term deht Your organisation also made available to the company what is now a $400.00) evolving credit. II and I may borrow up to 50 percent of receivables outstanding for less than 6 days and up to 40 percent of inventory, excluding inventory work in procent. The company muur be out of debt for 30 consecutive days during the second quarter of every calendar year Until the end of 2043, the company was a model customer, meeting the second quarter 30 day dean up requirement fairly easily in 20Y1 and 20Y2. At the end of fiscal 2013, however, the company was unable to clean up the line. In fact, at the end of June, the outstanding balance w 5101, the company having been unable to reduce the line significantly below $100.00 at any tume during the entire second quarter. The balance outstanding on the last day for which you have data was $153000 John Holmgren is the Lender responsible for the relationship, and he has asked you for assistan deciding tow to handle the loan. When the company could not meet the cleanup requirement, John waived the requirement based on the company's past history and performance. In John's opinion, and H'S management has such high intent that your organization will be able to recover its many, he believes that the owners would sell their houses if necessary to repay the debt. Having said that, fohn is also aware that the owning family depends upon dividend income and considers an al dividend of stkast 80% to be mandatory John is feeling the dissatisfaction of credit management, which is unhappy with his decision to waive the clean-up. He needs to come up with a solution to the peoblem that will meet both the company's and your organization's need . As you and John discuss the situation, he tells you that H and He's management expects sales to increase significantly in 2014 and that part of that increase will be dee to additional contracting - mainly espaining eller installations by a couple of competitors that have since gone out of business The Wilkinsons have proponed that the limit on the revolving credit be increased to $500 stance in 2 Commercial Loans to Business Online Hearth and Home Part B Hearth and Home Balance Sheets in $000s) As At June 30 2013 2012 2011 $ $ 100 ASSETS Current assets Cash Accounts receivable Inventory Other current assets Total current assets 66 376 547 123 303 461 70 957 240 417 117 874 1.096 Fixed assets 313 257 245 Trademarks and goodwill 107 71 71 TOTAL ASSETS $ 1.516 $ 1.285 $ 1190 $ $ 67 LIABILITIES AND OWNERS' EQUITY Current liabilities Current portion-LTD Notes payable Accounts payable Accrued expenses Other current liabilities Total current liabilities 67 101 244 69 46 527 $ 67 5 204 64 28 388 148 57 47 319 Long-term debt 330 397 454 Other noncurrent liabilities 20 19 18 Owners' equity 639 501 389 TOTAL LIABILITIES AND OWNERS' EQUITY $ 1.516 5 1285 1.190 Working investment $ 610 $ 496 $ 452 Hearth and Home 3 Hearth and Home Part B Hearth and Home Income Statements (in 3000 Years Ended June 30 $ $ -$ Sales Cost of goods sold Gross profit 2013 3.570 2.467 1.103 2012 3.000 2.093 907 2011 2.500 1.773 727 36 Interest expense Depreciation expense Operating expense Profit before taxes 36 60 586 33 52 477 345 50 371 270 Taxes 188 149 108 Net profit after taxes $ 233 $ 196 $ 162 Dividends 95 84 85 Earnings retained $ 138 112 92 4 Commercial Loans to Business Online