Clarkson Case

Clarkson Case - C larkson Case Ben Alexander Eric Schneck...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
Clarkson Case Ben Alexander Eric Schneck Terra Collette Natalia Martinez 1. Clarkson is a fast growing company; each year that sales grow, additional assets are required in order to support the higher sales volume. Mr. Clarkson needs to borrow money because he expects sales to increase 25% over the next four years. He needs a way to cover the costs associated with this sales growth. Because this is a privately held firm, Clarkson cannot raise money from external equity financing and can only reinvest the profits from the previous year. The projected net income for 1996 is $89,000; however, the projected amount of external financing required is $805,000. The amount of internal financing will not be enough to support new growth; debt financing is required. We can see from the Sources and Uses Table (exhibit 1) that the largest source of cash is from the bank loan. According to the sustainable growth rate, without changing his capital structure, he can only grow 20.7% (exhibit 2). If Clarkson is able to obtain additional financing, he is able to support higher sales growth without depleting cash reserves. 2. Clarkson is looking for additional external financing to support sales growth. During 1996, sales growth to 5.5 million will require an additional $355,000 of assets. Additionally, Clarkson will pay off all outstanding Notes Payable for $617,000 (figure 3). With the current sales forecasts, Clarkson will require $821,000 in
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 03/23/2011 for the course BUS M 401 taught by Professor Toddmitton during the Fall '10 term at BYU.

Page1 / 5

Clarkson Case - C larkson Case Ben Alexander Eric Schneck...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online