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Chemalite Inc

• Define

The production facilities are going to a larger location to support expanding sales.

• Measure 

• Sales are expected to increase 150%

• 50% Wholesales

• Wholesales pay in an average of 40 days

• Average Stock of raw materials is assumes $75,450.00
• The land and building for the new facilities will cost $850,000.00

• Land $250,000.00
• Facility $600,000.00

• Operations in the new facilities will start in July
• Life: 10 year
• Depreciation straight line method
• Insurance: $97,500.00 (july 92 – dic 93)

• The will buy new machines with a cost of $520,000.00 (June).

• Life:10 years
• Selling price of the old machines: $215,000.00

• Purchase of treasury stock $26,000
• Long term debt: $510,000 (June 30)

• At 10% paid annually

• Net working capital in 1991 for $226,600 and 1992 for $119,200. Decrease 90%.

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• Analysis [pic 4]

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• Recomendations

1. Conduct a market research in the medium and long term (5 to 10 years), to assess the trend of the product, market maturity, development of new products and new patents.

2. Based on the previous point, it will be possible to generate a sales projection model, plan an increase production capacity, develop payment plan of current funding and assess new financing methods to achieve development.  

3. Postpone the payment of dividends, it is necessary to reach market stability.

4. Improve the bills collection method.

5. Program that improves short term liquidity and increases working capital. Cash coverage ratio decreased significantly in 1992.

6. Reduce inventory levels.

7. Reduce the level of leverage, which is 2.5 times bigger the projected vs the plan.

8. Evaluate indicators of impairment in long – term assets (tangible and intangible).  

• Bibliography

Ross Westerfield Jaffe. (2013). Corporate Finance. New York : 10th.

DAVID F. HAWKINS . (2007). The Statement of Cash flow. Boston : Harvard Business School.

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