222.5 - Problem: George Dodge must decide if Northrop...

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Problem: George Dodge must decide if Northrop National Bank should extend a loan to Butler Lumber and if so, must decide under what conditions the loan should be extended. Alternative One: Extend the Loan- Extending the loan would have many positives for Mr. Dodge. A 465,000 dollar loan could make the bank a lot of money. By not extending the loan with modifications, Dodge ensures that Butler lumber will continue to pursue business with Northrop National Bank. Additionally, Butler always was diligent in paying back their past loan. All of Butler’s suppliers often give Butler leeway in paying, and Butler always pays their debt. Butler is a well-respected company. Additionally, Butler’s sales and profits seem to be going up. There has been an average of a 20 percent increase in net income the past two years, and there was a 28 percent increase in 1991’s first quarter net income to that of 1990’s first quarter. Increase in sales to 3.6 million seems adequate, and if lumber prices rise they could make even more. Thus compared to the increase in net sales expected 1991 to that of 1988, the increase in the loan is very similar (70 percent increase in sales to 88 percent increase in the loan). The amount of money that Butler is asking thus seems reasonable. Yet, this alternative has many disadvantages. If, Butler happens to go bankrupt or cannot pay back the loan the bank would lose all their money. Also, an upcoming economic recession could hurt the sales of Butler Lumber. Additionally, the current ratio and acid ratio is rapidly decreasing. This means that the company is becoming less liquid, which means it will have a harder time paying back the loan. Furthermore, although it is not increasing, the cost of sales is high. This means that the profit margin is not very high for Butler Lumber and some of their methods are off. Thus there might be more than increasing
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This note was uploaded on 09/17/2008 for the course AEM 2220 taught by Professor Perez,p.d. during the Spring '06 term at Cornell University (Engineering School).

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222.5 - Problem: George Dodge must decide if Northrop...

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