Why can a profitable company - Expert Answer
Part 1: Why can a profitable company like Jackson not repay its loan on time? What major company developments between August 2012 and May 2013 contribute to this situation? Do you agree with the decisions made over this period of time? Why or why not? What would you change? • Part 2: Prepare a sources and uses of funds statement for August 2012 through May 2013. Remember: o Any increase in an asset is a use of funds; any decrease is a source. o Any increase in a liability is a source of funds; any decrease is a use. o Any increase in equity is a source of funds; any decrease is a use. • Part 3: Prepare a monthly cash budget and pro forma income statements and balance sheets for the last 4 months of the fiscal year. Refer to the Jackson Automotive document for proper formatting of these statements. Do the cash budgets and pro forma financial statements yield the same results? Why or why not? • Part 4: Based on your forecasts and analysis of Jackson’s credit, is the company able to repay its loan at the end of the fiscal year? What are the risks associated with the proposed loan? • Part 5: Critically evaluate the assumptions on which your forecasts are based, and perform a sensitivity analysis on the fiscal year-end cash balance when sales vary from expectations. Show effects of a 10% increase in sales and an equal increase in all expense accounts that adjust with sales. Show effects of a 10% decrease in sales and an equal decrease in all expense accounts that adjust with sales. • Part 6: Should the bank extend the maturity of the current loan and approve the additional loan? What terms and conditions should the bank impose to reduce the risks of the loan to the bank? • Part 7: Why did the company repurchase a substantial fraction of its outstanding common stocks? What was the impact of the repurchase on Jacksons’ financial condition? • Part 8: Critically assess the company’s proposed dividend payout in September 2013. Should the bank agree with the payout? What seems to be an appropriate amount?
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