Michael O'Connor January 15, 2014
Financial Management Case Study 2
The case is about Deerpark, a resort in West Virginia and their current forecast of cash flows for the next few months. Deerpark is currently coming upon the off season for their business, where they usually run a cash deficit but is able to make up for it during the peak season. The cash flows should have been sufficient, but three new concerns have come up which have left the manager, Patrick Harding concerned. The first issue is renovations which have gone from an estimate of $420,000 up to $500,000 worth of work. Second is the loss of the long term sales manager, and the replacement does not seem to ...view middle of the document...
The suppliers side of the investment into the loan is not actually the full amount needed. Deerpark wants to defer $316,150, but the suppliers are actually invested for their costs. This includes their fixed and variable costs in construction. This, plus the profit they were going to receive if paid on time, is what makes up the $316.150. They also have to consider possible interest and further charges that they may collect should they allow a deferment of payments.
The purveyors of Deerpark do in fact have an incentive to cooperate with the deferment. The resort has a strong relationship with the suppliers, and if they decide not to defer payments they could stress that. Deerpark is also expecting much more income starting in April, so chances are the puveyors will be paid back very quickly. The main expense setting Deerpark back is the renovations which is not an expense incurred yearly and without it they would be able to pay scheduled payments in a timely fashion. The area is also experiencing a recession, so the loss of such a large customer with a great relationship could really hit the purveyors hard.
If the purveyors are unwilling to play along with a deferment, Deerpark will have to take a loan out from the bank. Due to the already strained relationship with the bank, this is an unwanted option but needed as raising capital will be impossible for this off season. The bank will also most likely impose strict regulation on the loan, likely interferring with Deerpark's plans and making it costly to take it out.
I believe a place like Deerpark is more likely to revise a cash budget then an electric company. Deerpark is a place with busy and slow seasons, changing drastically in both. It also can change month to month solely based on its sales and customer volume. In all, its income is much more variable based. An electric company is much more stable, having mostly...