Following a rapid growth in its business during the preceding several years, the Strunk Lumber Company in the spring of 2022 anticipated a further substantial increase in sales. In order to finance this increase and at the same time to continue taking purchase discounts, the company sought an additional bank loan of $600,000. The company had already borrowed from the Sutter National Bank, that amount being the maximum which that bank would lend to any borrower. It was necessary, therefore, to go elsewhere for additional credit. Through a personal friend who was well acquainted with Kathryn Hersey, Babson MBA10, SVP, Director of Wealth Management, Chief Investment Officer and Eastern Mass Regional President of Berkshire Bank, Mr. Strunk, the sole owner of the Strunk Lumber Company, obtained an introduction to the officer and presented his request. The credit department of the Berkshire Bank made its usual investigation of the company for the information of the loan officers. The Strunk Lumber Company was founded in 2012 as a partnership of Mr. Strunk and Mr. Henry Smith, a brother-in-law of Mr. Strunk. Six years later, on January 1, 2019, Mr. Strunk bought out Mr. Smiths interest and incorporated the business. The business is located in a suburb of a large Midwestern city. Land and a siding were leased from a railroad. Terms of the lease permitted cancellation by either party upon 30 days notice. Two removable sheet metal storage buildings had been erected by the company. Operations were limited to the wholesale distribution of plywood, mouldings, and sash and door products to small contractors in the local area. Credit terms of 1% 30, net 60 days on open account were usually offered customers. Sales volume had been built up largely on the basis of aggressive price competition made possible through careful control of costs and operating expenses and by quantity purchases of materials at substantial discounts, generous credit terms and a high inventory service level. Almost all of the mouldings and sash and door products, which amounted to 40% and 20% of sales, respectively, are used for repair work. About 55% of total sales were made from March through August. No sales representatives are employed, orders being taken exclusively over the telephone. Comparative operating statements for the years 2019 through 2022 are presented in Exhibit 1. Comparative balance sheets are presented in Exhibit 2. Mr. Strunk is an energetic man, 39 years of age, who works long hours on the job, taking care not only of management but also performing a large amount of the clerical work. Help is afforded by an assistant who, in the words of the investigator of the First City National Bank, has been doing and can do about everything that Mr. Strunk does in the organization.

2 Mr. Strunk has adopted the practice of distributing bonuses to employees at the end of each year. In 2021 the bonus amounted to 40% of annual wages. In addition, Mr. Strunk was planning to sell stock to certain employees. As part if its customary investigation, the First National City Bank sent inquiries concerning Mr. Strunk to a number of firms which had business dealings with his. The manager of one of his large suppliers, The Cotter Company, wrote in answer: The conservative operation of his business appeals to us. He has not wasted his money in disproportionate plant investment. His operating expenses are as low as they could possibly be. He has personal control over every feature of his business and he possesses sound judgment and a willingness to work harder than anyone I have ever known. This, with a good personality, gives him an excellent turnover and from my personal experience in watching him work, I know that he keeps close check on his own credits. All of the other trade letters received by the bank bore out the statements quotes above. In addition to the ownership of his lumber business, Mr. Strunk held jointly with his wife an equity in their home, mortgaged for $195,000, and which cost $420,000 to build in 2011. He also held a $1,500,000 life insurance policy, payable to Mrs. Strunk. The banks analysts prepared the spread sheet of financial ratios for Strunk Lumber Company shown in Exhibit 3. The bank gave particular attention to the debt position and current assets and current liabilities of the business. It noted the ready market for the companys products at all times and the fact that sales prospects were particularly favorable. The rate of inventory turnover was high, and losses on bad debt in past years had been quite small. The bank learned, through inquiry of another lumber company, that the usual terms of purchase in the trade were 2% 10, net 30 days after arrival. Mr. Strunk hoped to use the additional bank loan to pay off his debts to his trade creditors, earn the two percent purchase discount that most of his vendors offer, and expand his business. Strunk Lumber Company Income Statements for the Years Ended December 31, 2019 through 2021 and Projections for 2022 (amounts in thousands) Projected 2019 2020 2021 2022 Net Sales............................................. $4,443 $5,490 $7,074 $9,282 Cost of Good Sold: Beginning Inventory........................... $ 666 $ 582 $1,104 $1,227 Purchases.................................................... 3,666 5,244 6,306 8,631 $4,332 $5,826 $2,470 $9,858 Less Ending Inventory................................ (582) (1,104) (1,227) (1,707) Cost of Goods Sold .................................... $3,750 $4,722 $6,183 $8,151 Gross Profit....................................................... $ 693 $ 768 $ 891 $1,131 Operating Expenses.......................................... (282)* (402)* (543)* (765)* Operating Income.............................................. $ 411 $ 366 $ 348 $ 366 Plus Purchase Discounts.................................... 27 27 33 39 Less Customer Discounts.................................. (42) (51) (66) (81) Income Before Taxes........................................ $ 396 $ 342 $ 315 $ 324 Income Tax Expense......................................... (171) (144) (132) (129) Net Income........................................................ $ 225 $ 198 $ 183 $ 195 Less Dividends.................................................. - - (60) (60) Increase in Retained Earnings........................... $ 225 198 123 135 *Includes depreciation of $6, $6, $9, and $9 for the years 2019 to 2022, respectively.

Exhibit 2 Strunk Lumber Company Balance Sheet December 31, 2019 though 2021 And Projections for 2022 (amounts in thousands) Projected Assets 2019 2020 2021 2022 Cash................................................................ $ 9 $ 9 $ 9 $ 12 Accounts Receivable (net) ............................. 342 459 690 870* Inventory......................................................... 582 1,104 1,227 1,707 Total Current Assets................................ $ 933 $ 1,572 $1,926 $2,589 Property and Equipment (net) ....................... 81 87 105 120 Total Assets............................................. $ 1,014 $ 1,659 $2,031 $ 2,709 Liabilities and Owners Equity Accounts Payable Trade............................. $ 360 $ 918 $1,050 $1,455 Taxes Payable................................................ 171 144 $ 132 $ 129 Notes Payable Smith.................................. 144 - - - Notes Payable Bank................................... - - 129 150 Notes Payable Employees.......................... - - - 120** Total Current Liabilities......................... $ 675 $ 1,062 $ 1,311 $1,854 Capital Stock................................................. $ 114 $ 174 $ 174 $ 174 Retained Earnings......................................... 225 423 546 681 Total Owners Equity............................. $ 339 $ 597 $ 720 $ 855 Total Liabilities and Owners Equity..... $1,014 $ 1,659 $ 2,031 $ 2,709 *Includes $30,000 assigned to Cotter Company **For Bonuses

1. Should Mr.Strunk get the loan?

2. a. If yes, please provide the most salient supporting argument in one sentence.

2. b. If no, please provide the most salient argument in one sentence.

3. a. Pulse check - Cash balance, 12/31/22, projected:

3. b. Pulse check - Free Cash Flow (FCF), FY2022, projected:

3. c. Pulse check - Quick Ratio, FY2022, projected:

4. a. Traditional work-up - US GAAP Revenue FY 2022, projected:

4. b. Traditional work-up - Gross Margin FY 2022, projected:

4. c. Traditional work-up - Gross Margin FY 2019, actual:

4. d. Traditional work-up - Net Margin FY 2022, projected:

4. e. Traditional work-up - Net Margin FY 2019, actual: