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Description of Assignment Dynashears-1

Description of Assignment Dynashears-1 - accumulated much...

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AEM2200 Fall 2011 Pedro David Pérez Description of Assignment - Dynashears Dynashears manufactures a complete line of household scissors and industrial shears. It has sufficient capital to cover its permanent requirements over the foreseeable culture. Because of a policy of level production and a highly seasonal sales pattern, however, Dynashears has to borrow funds to cover its working capital requirements from July to December. Normally, it is able to repay its short-term bank loans in full by December 31, and is “out of the bank” until the next seasonal buildup. During the recession of 1990-1991, sales began to fall off from projected levels in July 1990. The company was slow to react and, as a consequence of declining sales and continued high-level production, finished-goods inventories were
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Unformatted text preview: accumulated much in excess of planned amounts. Profits and retained earnings thus fell sharply. Dynashears was therefore unable to pay off its bank loan during the early part of 1991. The treasurer of Dynashears requests an extension of the company’s loan for the second time in April 1991 and indicates that the loan probably will have to be increased beginning in June. Questions: 1. Why was Dynashears unable to repay its bank loan by March 31st, 1991, as originally forecast? 2. Should Mr. Winthrop extend the Dynashears’ loan, and indeed increase it? 3. Which of the following options is best for Mr. Winthrop? a. Extend and increase the loan; b. Extend and increase the loan, but ask for security; c. Refuse the loan. March 3 rd , 2008; revised September 24 th , 2009...
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