2. Butler-Lumber-Company-Case-Solution - An Analysis on...

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An Analysis on estimating Funds RequirementsPresented By :Saurabh Kumar Sinha 2009PGP049Saurabh Patawari 2009PGP050Siddharth Shankar Prasad 2009PGP051Sourjyo Das 2009PGP052Sreethala Ganapathy 2009PGP053Shubhangi Shree 2009PGP054
Butler Lumber in Spring 1991Originally founded but Butler and StarkButler buys out Stark for $105,000 by taking a$70,000 loan payable over 10 years at 11% p.a.Needs $247000- approaches Suburban NationalBankRelies heavily on trade creditWhy does Butler Lumber want to shift banks?Now, Suburban National bank wants ‘real’ collateral forits loansHe, however, wants a larger unsecured loan (Suburbanbank has cap of $250,000 on it’s loans)He also wants a larger loan that would give himflexibilityHe considers Northrop National Bank as an alternative
Reasons for choosing Northrop over SuburbanHigher cap on loans $465,000This credit line would provide to him larger flexibilityCompany HistoryBegan in 1981 as a partnership by Butler ad StarkBusiness incorporated in 1988 by Butler by buyingout Stark’s share for $105,000Paid $35,000 ,$70,000 as bank loan at interest rateof 11% repayable at $7000 over a period of 10years
Business operating conditionsLocated in a suburb in Pacific NorthwestCompany owned land and buildings near a railroadCredit term of 30 days offered to customersCompany had a good reputation as researched by Northnorp National BankPersonal assets of Butler-joint equity on a house of $72,000 mortgaged at$38,000Company pays suppliers after 30 days not availing the discount of 2% offeredby the suppliers for payment within 10 daysTerms of Northrop National BankSecured 90-day note with a limit of $465,000

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Term
Fall
Professor
E
Tags
Debt, trade credit, National Bank, Northrop National Bank, Suburban National Bank

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