CASH FLOW ANALYSIS of Frank Smith Plumbing

Read the followin” rel=”nofollow”>ing case study to complete the assignment.Frank Smith has been a plumber in” rel=”nofollow”>in the college town of Turlock, CA for the last thirty years. All the people who know him call him Frankie because he is friendly, social, and charges a fair price for his services. His busin” rel=”nofollow”>iness has grown because new customers become repeat customers. He has worked hard to support his family and has raised three children who have attended the local school system. However, in” rel=”nofollow”>in recent years, he has had to work overtime to ensure he has the funds to fin” rel=”nofollow”>inancially support his daughter in” rel=”nofollow”>in the busin” rel=”nofollow”>iness program at the local state university. He encourages all his children to pursue a college education because he knows it will be valuable in” rel=”nofollow”>in their futures and, as a rule, Frank has never believed in” rel=”nofollow”>in borrowin” rel=”nofollow”>ing money. Every time he has purchased somethin” rel=”nofollow”>ing — such as tools, vehicles, equipment, or even his children’s college educations — he has paid in” rel=”nofollow”>in cash.

Frank has been usin” rel=”nofollow”>ing his plumbin” rel=”nofollow”>ing truck for the last 14 years. However, recently it has begun stallin” rel=”nofollow”>ing and the mechanic has recommended buyin” rel=”nofollow”>ing a new fuel-efficient truck rather than repairin” rel=”nofollow”>ing his old, gas-guzzlin” rel=”nofollow”>ing one. Unfortunately, Frank has used all of his money to pay for his livin” rel=”nofollow”>ing expenses and daughter’s college education. He has explored purchasin” rel=”nofollow”>ing a new truck and does not have enough cash saved to buy one outright.

Recently, the Smith family got together for din” rel=”nofollow”>inner, and Frank started explain” rel=”nofollow”>inin” rel=”nofollow”>ing that it was time to forego self-employment in” rel=”nofollow”>in favor of workin” rel=”nofollow”>ing for a plumbin” rel=”nofollow”>ing company because he could not afford to buy a new truck. The family reacted in” rel=”nofollow”>in sorrow, lamentin” rel=”nofollow”>ing that Frank would be forced to work for a company when he had been runnin” rel=”nofollow”>ing a successful busin” rel=”nofollow”>iness on his own for so long.

The eldest daughter, Stephanie, a senior studyin” rel=”nofollow”>ing busin” rel=”nofollow”>iness admin” rel=”nofollow”>inistration, listened to her father and after a pause, said, “You do not have to give up your busin” rel=”nofollow”>iness. You can borrow money from the bank, pay monthly in” rel=”nofollow”>installments on the truck, and still have the in” rel=”nofollow”>independence of ownin” rel=”nofollow”>ing your own busin” rel=”nofollow”>iness.”

Frank’s wife, Elena, join” rel=”nofollow”>ined the conversation and remin” rel=”nofollow”>inded Frank that he has been servicin” rel=”nofollow”>ing Hosea Garcia, the manager of the community bank, for the last two decades. Elena told Stephanie to contact Garcia because she was sure he would help Frank get the loan. Stephanie responded that it would not be proper to contact Hosea privately and ask for assistance because, as the manager of the bank, Garcia has to follow strict rules when evaluatin” rel=”nofollow”>ing the creditworthin” rel=”nofollow”>iness of the borrower before the bank can lend.

Stephanie further explain” rel=”nofollow”>ined the importance of ethics in” rel=”nofollow”>in the fin” rel=”nofollow”>inancial service in” rel=”nofollow”>industry: she remin” rel=”nofollow”>inded her mother that banks, in” rel=”nofollow”>in particular, are very strict when lendin” rel=”nofollow”>ing money, especially after the 2008 fin” rel=”nofollow”>inancial crisis. Based on what she learned in” rel=”nofollow”>in her ethics class, Stephanie explain” rel=”nofollow”>ined that it was not appropriate to contact the bank manager. Instead, she advised the best approach would be to go through all the fin” rel=”nofollow”>inancials, prepare cash flow statements for Frank’s busin” rel=”nofollow”>iness, fill out a loan application, provide all the required bank documents and let the bank decide on the loan. Based on the fin” rel=”nofollow”>inancial in” rel=”nofollow”>information, Stephanie felt that her dad would be approved for the loan.

However, Elena said, “I am not goin” rel=”nofollow”>ing to take that chance of your dad havin” rel=”nofollow”>ing to go to work for somebody else. I am goin” rel=”nofollow”>ing to call Hosea and his wife tomorrow and tell him to help get the loan. You do whatever you need to do, and I will do what I need to do.”

This put Stephanie in” rel=”nofollow”>in a difficult position. On one hand, she was aware of the ethical issues in” rel=”nofollow”>involved and on the other hand, she did not want her father to have to give up his busin” rel=”nofollow”>iness. Unsure of how to handle the situation, Stephanie decided to research and get advice on the ethical issues at school the next day.

In the meantime, Stephanie explain” rel=”nofollow”>ined to her father, “Based on what I have learned in” rel=”nofollow”>in busin” rel=”nofollow”>iness school, entrepreneurship is the key to success, and limited leverage is always good for busin” rel=”nofollow”>iness. You have been workin” rel=”nofollow”>ing for over 20 years and based on your in” rel=”nofollow”>income, you should not have any problem borrowin” rel=”nofollow”>ing from the bank.”

Frank asked his daughter, “Stephanie, how can I make profits and pay this much money for the truck?”

Stephanie replied, “I am goin” rel=”nofollow”>ing to take all the in” rel=”nofollow”>information, check with the bank, and do a fin” rel=”nofollow”>inancial analysis to determin” rel=”nofollow”>ine whether the in” rel=”nofollow”>investment in” rel=”nofollow”>in the truck is profitable or not. You have paid for my education, and I am goin” rel=”nofollow”>ing to pay you back by applyin” rel=”nofollow”>ing my knowledge to help you make a good busin” rel=”nofollow”>iness decision.”

Stephanie gathered the in” rel=”nofollow”>information found in” rel=”nofollow”>in the attached spreadsheet. The in” rel=”nofollow”>information in” rel=”nofollow”>includes the cost of the truck, cost of additional equipment on the truck, cost of capital, tax rate, and the life of the truck. It also in” rel=”nofollow”>includes cash in” rel=”nofollow”>inflows generated from the use of the truck.

Complete the followin” rel=”nofollow”>ing tasks:

1. Assume you are Stephanie, research whether there is an ethical problem with Elena callin” rel=”nofollow”>ing the bank manager and his wife and gettin” rel=”nofollow”>ing the loan approved. If there is an ethical issue, how should Stephanie convin” rel=”nofollow”>ince her mother that it is in” rel=”nofollow”>inappropriate to call the bank manager and his wife for assistance in” rel=”nofollow”>in gettin” rel=”nofollow”>ing loan approval?

2. Explain” rel=”nofollow”>in why limited leverage is good for busin” rel=”nofollow”>iness.

3. Based on the given in” rel=”nofollow”>information, tax rate, and depreciation show the profitability of the project so that Stephanie can convin” rel=”nofollow”>ince her father to purchase the truck by borrowin” rel=”nofollow”>ing money.

Analyze the case study, “Frank Smith Plumbin” rel=”nofollow”>ing.”
Analyze the “Frank Smith Plumbin” rel=”nofollow”>ing’s Fin” rel=”nofollow”>inancial Statement” spreadsheet.
Compare the cost of the truck to the cash flow records
Compile your calculations in” rel=”nofollow”>in a Microsoft® Excel® document
Develop a 550- 750 word analysis and in” rel=”nofollow”>include the followin” rel=”nofollow”>ing:
• Explain” rel=”nofollow”>in why limited leverage is good for busin” rel=”nofollow”>iness.Show the profitability of the project so that Stephanie can convin” rel=”nofollow”>ince her father to purchase the truck by borrowin” rel=”nofollow”>ing money.
• Explain” rel=”nofollow”>in how Stephanie should convin” rel=”nofollow”>ince her mother that it is in” rel=”nofollow”>inappropriate to call the bank manager and his wife for assistance in” rel=”nofollow”>in gettin” rel=”nofollow”>ing the loan approval?
• Analyze whether the in” rel=”nofollow”>investment in” rel=”nofollow”>in the truck is profitable.

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