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Case Study - Case Study Butler Lumber Company Butler Lumber...

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Case Study: Butler Lumber Company Butler Lumber Company (BLC) has experienced prodigious growth in the short life of its company. However, a shortage of funds has forced BLC to use debt extensively and now this lifeline is on the verge of exhaustion. BLC must formulate a plan that emphasizes debt reduction and increases their sources of cash to continue their growth. Alternative 1: Extend Loan to BLC George Dodge should encourage BLC to acquire the $465,000 from Northrop National Bank (NNB). BLC will continue to be a profitable company without the additional funding from NNB. This is evidence that BLC is a viable firm and Dodge can collect on the compound interest payments that would have otherwise been paid to Suburban National Bank (SNB). The reallocation of BLC’s debt can reduce compound interest paid and creditworthiness for BLC and simultaneously increase interest profits for NNB. BLC should transfer the debt of the loan used to pay Henry Stark to their new credit line. With an 11% interest rate, 7 years remaining, BLC will pay $103,808.01. If BLC transfers their balance they will save $3229.32 over the life of the loan. In addition, SNB will capture $10560.76 from the reallocation of this liability. BLC’s loan with SNB carries a 98.8% of total available credit balance. This explains in part their subprime rate on their quoted rate with NNB. However, with the adoption of the new credit line, BLC will
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