Butler Lumber Case Study Solution
Case Study Objective: As Mr. Butler’s financial advisor, would you give urge him
to go ahead with, or reconsider, his anticipated expansion and his plans for
additional debt financing? As the banker, would you approve Mr. Butler’s loan
request, and, if so, what conditions would you put on the loan?
The maximum loan that the Butler Lumber Company (BLC) could obtain from
Suburban Nation was $250,000 in which his property would be used to secure the loan.
Northrop National Bank offered BLC a line of credit of up to $465,000. BLC would have to
sever ties with Surburban National if they were to have this LOC extended to them.
As Mr. Butler’s financial advisor, I would advise him to take the loan in an attempt
to grow the business. One alarming fact about his business is the lack of a sales staff, yet
the revenue has been able to grow at a fast pace; 18% in 1989, 34% in 1990, 19% in 1991.
By adding another experienced salesman that is working for a base salary plus
commission, they can grow the revenues even more. By having this person work on
commission, this will eat into the profit margin for the materials he is selling. But the net
impact to the BLC will be positive. I would advise Mr. Butler to select the LOC for up to
$465,000 because he can take out as little as he needs. He does not need all $465,000 this
quarter, but he may need some in the first and last quarters of the year because he obtains