1.Evaluate Tire City’s financial health. How well is the company performing?
2.Based on Mr. Martin’s prediction for 1996 sales of $28,206,000 and for 1997 sales of $33,847,000, and relying on the other assumptions provided in the case, prepare complete pro forma forecasts for TCI’s 1996 and 1997 income statements and year- end balance sheets. As a preliminary assumption, assume any new financing will be in the form of bank debt. Assume all debt (i.e., existing debt and any new bank debt) bears interest at the same rate of 10%.
3.Using your set of pro forma forecasts, assess the future financial health of Tire City as of the end of 1997. Will Tire City be in stronger or weaker financial condition two years from now?
4.Suppose the proposed terms of the bank credit agreement include a covenant (i.e., a contractual obligation that requires borrowers to maintain a specific condition to receive the loan) that reads as follows: “The company must maintain net working capital (defined for purposes of this loan as accounts receivable plus inventories minus accounts payable) of at least $4 million. For purposes of this covenant, net working capital will be measured at the end of each fiscal year.”
5.As a lender, would you be willing to loan TCI the funds needed to expand its warehouse facilities and finance its growth? Why or why not?
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- Submitted On 31 Jan, 2018 10:55:36