Homework Help is Here – Start Your Trial Now!
Business
Finance
Assessing credit risk using cash flow forecasts (LO 7-7) Randall Manufacturing has requested a $2 million, four-year term loan from Farmers State Bank. It will use the money to expand its warehouse and to upgrade its assembly line. Randall supplied the followin cash flow forecasts as part of the loan application. ($ in thousands) Cash provided by operations Cash used for investing activities Cash used for financing activities Net change in cash 20X1 $685 (2,590) 2,000 $95 20X2 $715 (50) (100) $565 = 20X3 $720 Required: 1. As the bank's chief loan officer, what is your opinion about the degree of credit risk associated with this $2 million loan? 2. How can Randall Manufacturing lower its credit risk? (50) (100) $570 = 20x4 $735 (50) (100) $585 The forecasts assume that the loan is granted at the beginning of 20X1 and that $2.59 million will be spent that year on the expansion and upgrade. Randall plans to spend $50,000 each year to replace won out manufacturing equipment and $100,000 each year for dividends.

Assessing credit risk using cash flow forecasts (LO 7-7) Randall Manufacturing has requested a $2 million, four-year term loan from Farmers State Bank. It will use the money to expand its warehouse and to upgrade its assembly line. Randall supplied the followin cash flow forecasts as part of the loan application. ($ in thousands) Cash provided by operations Cash used for investing activities Cash used for financing activities Net change in cash 20X1 $685 (2,590) 2,000 $95 20X2 $715 (50) (100) $565 = 20X3 $720 Required: 1. As the bank's chief loan officer, what is your opinion about the degree of credit risk associated with this $2 million loan? 2. How can Randall Manufacturing lower its credit risk? (50) (100) $570 = 20x4 $735 (50) (100) $585 The forecasts assume that the loan is granted at the beginning of 20X1 and that $2.59 million will be spent that year on the expansion and upgrade. Randall plans to spend $50,000 each year to replace won out manufacturing equipment and $100,000 each year for dividends.

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
See similar textbooks
icon
Related questions
Question

3

P7-2 Assessing credit risk using cash flow forecasts (LO 7-7) Randall Manufacturing has requested a $2 million, four-year term loan from Farmers State Bank. It will use the money to expand its warehouse and to upgrade its assembly line. Randall supplied the following cash flow forecasts as part of the loan application. ($ in thousands) Cash provided by operations Cash used for investing activities Cash used for financing activities Net change in cash 20X1 $685 (2,590) 2,000 $95 20X2 $715 (50) (100) $565 20X3 $720 Required: 1. As the bank's chief loan officer, what is your opinion about the degree of credit risk associated with this $2 million loan? 2. How can Randall Manufacturing lower its credit risk? (50) (100) $570 20X4 $735 (50) (100) $585 The forecasts assume that the loan is granted at the beginning of 20X1 and that $2.59 million will be spent that year on the expansion and upgrade. Randall plans to spend $50,000 each year to replace worn- out manufacturing equipment and $100,000 each year for dividends.
Transcribed Image Text:P7-2 Assessing credit risk using cash flow forecasts (LO 7-7) Randall Manufacturing has requested a $2 million, four-year term loan from Farmers State Bank. It will use the money to expand its warehouse and to upgrade its assembly line. Randall supplied the following cash flow forecasts as part of the loan application. ($ in thousands) Cash provided by operations Cash used for investing activities Cash used for financing activities Net change in cash 20X1 $685 (2,590) 2,000 $95 20X2 $715 (50) (100) $565 20X3 $720 Required: 1. As the bank's chief loan officer, what is your opinion about the degree of credit risk associated with this $2 million loan? 2. How can Randall Manufacturing lower its credit risk? (50) (100) $570 20X4 $735 (50) (100) $585 The forecasts assume that the loan is granted at the beginning of 20X1 and that $2.59 million will be spent that year on the expansion and upgrade. Randall plans to spend $50,000 each year to replace worn- out manufacturing equipment and $100,000 each year for dividends.
Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 4 steps

SEE SOLUTIONCheck out a sample Q&A here
Blurred answer
Knowledge Booster
Cash Flow Statement Analysis
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.
Recommended textbooks for you
Essentials Of Investments
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
FUNDAMENTALS OF CORPORATE FINANCE
FUNDAMENTALS OF CORPORATE FINANCE
Finance
ISBN:
9781260013962
Author:
BREALEY
Publisher:
RENT MCG
Financial Management: Theory & Practice
Financial Management: Theory & Practice
Finance
ISBN:
9781337909730
Author:
Brigham
Publisher:
Cengage
Foundations Of Finance
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education
SEE MORE TEXTBOOKS