Jackson Automated System Case Solution & Answer

Jackson Automated System Case Solution

Estimation of Edward for Not Paying Loan:

During May 2012 to September 2012, the company’s sales were not satisfactory due to the delay in a shipment which comprised of 90% of the annual capacity of customers order. The purpose of the loan was to buy back the stocks which helped the JAS to decrease the dilution of shares issued. JAS requested the bank for a loan of $5 million which would help it to buy 40% of shares which is $1 million shares of Par Value of $ 1 per share.

JAS had strong working capital and financial policy in the previous month due to which it did not issue a loan, thereforeit was evident that JAS would have no any problem of servicing the debt due to its position in the previous month. Instead of having the temporary delay in shipments, Edward is providing operating and financial information which shows the profits of JAS in past few months and it is also estimated by the advanced orders of about $4.2 million that in the estimated months it is going to benefit and generate enough cash to pay out its debts.

Edward is estimating $1627, 000 of cash on hand in June 2013 to pay the debt.

Edward Estimation to Pay both Loans:

By considering the case, Edward is highly confident that JAS would be able to pay back both short term loans where one is for the purchase of equipment of $2.4 million, and other is $ 5 million to buy back the shares. JAS has received advanced orders of $4.2 million on different cooling parts whose delivery is expected in summer months,the actual shipment order is of $1.8 million in June & July and remaining $600,000 in August.

Edward is estimating $7500, 000 of cash on hand on September 2013 to pay the total debt including principal amount and interest expense. However, as per the calculation, Edwards would not be able to pay off the debt as it will not have enough cash balance. See exhibit 2.

In my opinion, MSB should increase the maturity of loan due to past active financial information, however its prospects show decrease in profits but not loss, therefore it is entirely dependent on revenue as the estimation of the month June shows high sales which are 12,681,but then they reduced to 7,394 till Sept 2013, as the company has enough cash on hand to pay the debt of total principal amount and interest expense.

The first loan was taken off about $5 million to share buyback and the second loan request was to invest in equipment of about $2.4 million. MSB should approve the request because material leads to increase in production of a company which will improve the company’s performance.

Terms and Conditions:

MSB should impose following conditions:

  • To give update of every single transaction that the company is going to have and in order to ensure the company is not involved in any bankruptcy.
  • Provide monthly, quarterly and annual financial statements to review the profit and cash statements.
  • Increase the rates of loan extension.
  • Extra charge on late interest payment.
  • MSB should keep the company indefault risk if it is unable to pay principal and interest amount……………..
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