Frank Smith Plumbing Case Study
Analyze the case study, “Frank Smith Plumbing.” (Attached)
Analyze the “Frank Smith Plumbing’s Financial Statement” spreadsheet. (Attached)
Compare the cost of the truck to the cash flow records
Compile your calculations in a Microsoft® Excel® document
Develop a 1,050-word analysis and include the following:
- Explain why limited leverage is good for business.Show the profitability of the project so that Stephanie can convince her father to purchase the truck by borrowing money.
- Explain how Stephanie should convince her mother that it is inappropriate to call the bank manager and his wife for assistance in getting the loan approval?
- Analyze whether the investment in the truck is profitable.
- Explain whether it is more beneficial for Frank to close his business.
- Explain what you would do in this same situation.
Format your assignment consistent with APA guidelines. (Use attached template)
- Limited leverage is good for the organization. Frank Smith has considerable experience and good client base in the location. It is providing more advantage to Frank Smith for approaching the bank. Taking loan has the benefit to the business (Nolo, 2007). Interest is paid on the amount of loan borrowed from the business. Banker will require more information about the business and their future only before the sanctioning loan.
Frank Smith should make a regular payment towards the loan even without missing one installment. The lender will not interfere….
2. Excel sheet
|Frank Smith Plumbing|
|Cost of Capital (borrowing)||12.00%|
|Cost of Truck||$200,000|
|Cost of additional equiment atached to turck||$15,000|
|Annual Before Tax Cash flows →||$55,000||$65,000||$50,000||$40,000||$32,000||$30,000||$35,000||$32,000|
|Depreciaiton Rate (MACRS)||14.29%||24.49%||17.49%||12.49%||8.93%||8.92%||8.93%||4.46%|
|Cash Outflows:||Year – 0|
|Cost of Equipment||$215,000|