Pejenca Case Study (Recieved an a)

Pejenca Industrial Supply LTD. Case Study

Executive Summary

Pejenca Industrial Supply Limited of London is in need of a $150,000 extension to their facility to provide them with additional inventory space that they are in desperate need for. Pejenca needed to decide whether or not they were in need of a loan to finance this extension or whether it could be paid through their cash and revenues on hand. Pejenca had a time limit of one week to make their decision regarding the expansion and how they were going to finance it. Charles should have no problem securing a bank loan with regards to his 4C’s of credit and his projected statements, as well as his current interest coverage ratio and liquidity ratios.

Charles has 4 options he must consider before going to the bank. One would be to not expand. Two would be to take the 135,000 loan and pay the additional 15,000. Three would be to take a 75,000 bank loan and finance the rest with his current cash. Four would be to expand entirely with the current cash balance.

The option that Charles should go with is option 2. Charles should take the entire $135,000 bank loan. Although this results in him paying additional interest payments, he is better off doing so because it provides much less risk than options 3 or 4. If they so happen to finance it with their current cash they could come into major trouble as the projected balance sheet for option 3 suggests. Also using option three will increase their cash, and gives them more flexibility with their money (ex pay dividends, purchase more assets or inventory.)

If the bank decides to decline their loan request Charles should barter for a $75,000 loan, or look for alternative banks/ financial institutions.

Main Problem:

The main problem in this case is Peter Charles’ decision on the amount of a loan required for Pejenca’s new extension. Charles must make a well thought out decision to ensure that the company can comfortably handle any additional debt. He must...