FINA 480

Case assignment #2

Clarkson Lumber Company

This case is an investigation of short-term debt financing decisions. You are asked to write up a professional memo representing either Mr. Clarkson or Northrup National Bank. Your report contains three sections.

Preliminary Analysis

In this step we recognize the problems facing Clarkson. This step is critical. In this step, try to address the following questions:

1. What's Clarkson's business and in what stage is it in its development and what are its future plans? It seems that Clarkson has been growing for the past couple of years, how has Clarkson fueled its expansion?

2. Describe Clarkson's financial performance as of now. Why Clarkson is so short of funds despite consistent profitability and expansion? Discuss its cash cycle and inventory turnover in detail.

3. Concisely summarize Clarkson's problems.

Potential Solutions

Propose at least three solution plans for Clarkson and assess the feasibility, and the pros and cons of each plan. The following questions may help you start.

- Is the current sales growth sustainable? What kind of growth rate would you recommend? - How attractive is the 2% discount for early payment the suppliers are offering? Can Clarkson offer similar deals to his customers?

- Is $750,000 sufficient? How much Clarkson really need?

- From the bank's perspective, what covenants you would like to impose? (Refer to your introductory finance textbook on bond covenants.)

- How would you solicit outside equity investors? Would Mr. Clarkson like an outside equity investor, given that he just bought out his partner?

Ultimate Recommendation

At this stage, you are ready to present your recommended action plan to Clarkson. Make sure that your plan can solve problems for Clarkson and satisfy all other relevant stakeholders (e.g., the bank).

- What criteria do you use when deciding one solution is better than another? Justify. - Describe your final recommendation. Discuss the potential questions/concerns from Mr. Clarkson and the bank.

Submission

By due date/time, please email me (all files attached in one email) and CC to all group members the following two files.

A summary of no more than five pages with usual specification (12 font size; double space; 1'' margin, etc.), and appendices attached to the end of the summary file.

Excel spreadsheet (programmed instead of hard coded).