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Finance 450 at EMU with Dr. Moeller

Butler Lumber Company
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Butler Lumber Company

Substantive Issues

The Butler Lumber Company has been expanding rapidly for several years. Increases in working capital requirements have outrun the capacity of the company to generate funds from internal sources. Mr. Butler must decided whether to continue to expand and if so how to raise the necessary funds.


Pedagogical Objectives

1. To ascertain why the Butler Company is so short of funds despite its record of profitable operations.

2. To evaluate Mr. Butler’s estimate of his loan requirement. To decide what size loan the company needs and when it can expect to repay this loan.

Questions to be answered

1. Prepare a pro forma income statement and balance sheet for 1991 to determine how much Butler Lumber will need to borrow if it expands as planned.

2. Prepare a financial analysis to determine why Butler is so short of funds.

3. Do you think Butler should continue to expand? Explain why or why not you recommend this to Butler.