Case study 1 ( 64 marks)

3M Ltd. Companyis amanufacturingcorporation operating in the fields of industry, worker safety and health care.The company produces personal protective equipment, dental and orthodontic products, andmedical products.The company has banked with Monash Bank for over three years.

"Given the breadth and diversity of our businesses, the financial impact of COVID-19 is varying across 3M," said the 3M chairman and chief executive officer. "In the first quarter, we saw strong growth in personal safety, as well as in other areas of our portfolio experiencing high demand due to the pandemic. At the same time, we experienced strong demand in several end markets that were more severely impacted by actions taken around the world to slow the pandemic. Looking ahead, 3M is taking action that will help us navigate near-term uncertainty, generate strong cash flow, and lead out of the slowdown by delivering for employees, customers and shareholders."

Five months ago, there was a sudden massive increase in the demand for their products due to the out-break of COVID-19. The director of 3M Ltd. expects long-term market growth for their products. 3M Ltd. decides to expand its business by buying more machines and building more factories to satisfy this increased demand. The company has provided their latest quarterly report for 2020 Q1 to the Monash Bank and has applied for a 2-year $10 million loanfrom the bank. The long-term debts in projected figures don't include the loan amount of this application.

The historical quarterly financial reports of 3M Ltd. are presented in Tables 1 and 2. The directors forecast a continuous increase in demand for their products for an extended period due to the COVID19 pandemic. They have provided the estimated balance sheet and sales reports for the coming two quarters (Tables 1 and 2, last two columns).In the income statement, the quarterly data represents the business activities within that quarter.

As a lending officer of Monash bank, you collect the financial ratios of the borrower and the industry of 3M Ltd., which are shown in Table 3 and 4.3M Ltd. also has issued corporate bonds, rated AA by Fitch.Fitch Agency has released a report of corporate bonds' ratings and corresponding yields in Table 5. On the bond market, you have observed the yields of government bonds in different maturities (shown in Table 6). Consider government

bonds as risk-free assets.