Documenti di Didattica
Documenti di Professioni
Documenti di Cultura
Industry:
Fluctuations- Building Activity varies greatly from year to year
Residential Construction has decreased since, 1997, last quarter of 98 slight rose
Commercial construction down from previous years
Flat business activity and decline in the construction industry has caused chartered banks
to carefully review construction loans
Competitive Industry
C) Prepare a projected Balance Sheet and Income Statement for the year ended December 31,
1999.
Palmer Limited
Budgeted Income Statement
For the Year that Ended December 31, 1999.
Sales $ 2,057,400
Taxes
Assets
Cash $ 388,575
Accounts Receivable (net) $ 149,500
Inventory 44,700
Prepaid Expenses 58,500
Total Current Assets $ 641,275
Investments 22,100
Fixed Assets 204,500
Other Assets 1,600
Scenario 2: Palmer Limited tries to pay off outstanding loan $368,600, and Borrows for periods where
the company needs cash.(Information from Exhibit A).It will need to borrow an additional $126,370.
Advantages:
The Confederation Banks Investment will be better protected and will decrease the risk of
Palmer Limited on defaulting on the loan
Keeps Palmer Limited as a customer
Disadvantages:
Company is highly leveraged
Palmer Limited may focus on paying the Long term debt, and not leave enough cash to cover
other items(Ex. Short term liabilities)
Estimates are highly speculative since there are many uncertainties in their line of business
(Billing and expenses)used may be incorrect(Building activity varies greatly from year to year)
Option 2: Offer Palmer Limited Short Term Financing, such as Line of Credit
Advantages:
Additional Revenue (from interest)to the bank
Maintain a good relationship with Palmer Limited
Disadvantages:
Increases Commitment to Palmer Limited
Option 3: Have Palmer pay off the Loan because of the uncertainty of collection due to increase in
interest rate, downward trend in construction industry, and poor financials.
Advantages:
Decreasing risk for the Confederation Bank
Will have cash from outstanding loans within 3 months
Disadvantages:
May lose Palmer Limited as a customer
May not get the full portion of the loan, if estimates are incorrect
Items taken into account for alternatives:
Confederation current commitment to Palmer Limited$368,600 vs. Net worth $162,
500(Personal effects, less $200,000 in outstanding mortgage loans)
Lack of skills- Palmer brothers have no experience running a business
Construction Industry is intertwined with the Saskatchewan economy
1998- the firm had expanded(grew workforce, leased new plant and invested in a major fixed
asset
Most of Palmer Limited came from acting as a subcontractor on construction projects
o If material, labour or overhead cost vary from estimates they can earn a profit or have a
loss
o 90% of billings collected 30 days after the billing, 10% collected ,4 months after billing
Previous gross margin 20%
Had extraordinary expenses of $164, 200($44,600-bankruptcy of Blue Water Limited,
investment, $111,800-bankruptcy of major customer, $7,800 bad debt)
Company plans to downsize
Estimate Labour and material costs to be 75% of billings