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Dynatronics

Dynatronics

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Published by Fezi Afesina Haidir
An Individual assignment for finance management final exam. Please share your opinion and give your rate.
An Individual assignment for finance management final exam. Please share your opinion and give your rate.

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Categories:Types, Business/Law
Published by: Fezi Afesina Haidir on Mar 11, 2013
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05/29/2015

 
 MM 5009Financial ManagementINDIVIDUAL FINAL EXAMDynatronics, Inc29111311 Haidir AfesinaMBA Executive 46MASTER OF BUSINESS ADMINISTRATIONSCHOOL OF BUSINESS AND MANAGEMENTINSTITUT TEKNOLOGI BANDUNG2012
 
 1
Executive Summary
Three electrical engineers in Burlington, Massachusetts in 1979, founded Dynatronics, a company that produce digital systems with several lines of proprietary items sold as components. It had enjoyedconsiderable success and expanded its business to variety of special-purpose system that applieddigital techniques to computing, information handling, control tasks and data processing as theincreasing of customer demand. Nevertheless, the company faced financial problems during thereviewing before the introduction of new product line. The company`s financing opportunities wereseverely restricted by its current financial position and the external financing possibilities wascontinued reliance on the reinvestment of earnings with no payment of dividends. It had reached thelimit of the credit line that the bank was willing to extend in the absence of some improvement in thecompany`s capital structure. In addition the retention of company`s earning from the products failedto alter the bank`s stand on additional financing. Therefore Ms. Liz Kraft, CFO at Dynatronics believed that any major investment would create further financing pressure. Thus she has to decide itsfuture investment and financing programs to be recommend to the shareholders. The case highlightsissues on inventory system, policy, introduction of new products and external financing needed posed by growth. It also illustrated how varying assumptions can affect the perceived value of a projectitself. The analysis will cover the existing financial performance, proforma and capital structure. Itconclude that the best possible way for Dynatronics are invest on new product line with E investment policy, also getting its external financing with the maximum composition 58% debt (bank loan) and42% IPO (equity). However, the company has to change its no dividends policy in order to apply theIPO.
 
 2
Current Situation
Due to its expansion, proprietary production had been shifted to Puerto Rico because of low wagelabor force in that area. Then the sales outlets had been established in Silicon Valley along with small plant for the design and production of aerospace industry. Short-term loans, secured by the pledge of receivables were obtained from the local bank to support this growing requirement. Regardlessextremely competition that made the product lifecycles had been cut short to 6-7 year cycle, the product almost trebled the sales so that the company`s investment in current asset expandedaccordingly.
 
The forecast for year-end 1989 current asset has been prepared to help in assessing thecompany`s immediate financing problem.a)
 
The growth prospects assumed;
 
Sales: $34 million
 
Cost of good sold: $20,74 million
 
Receivables: 22% (sales of raw material and work in process a four week`s rate of usage)The bank would lend up 90% of the account receivables balances outstanding.The interest rate charged rises to be 15.5% b)
 
The introduction of new product line assumed contribute to sales:
 
$5 million in 1990 and $6.5 million in 1991
 
$250.000 million (specialize equipment)
 
$90,000 (budget allocation)c)
 
External financing:
 
Bank loan
 
Issue up to 400,000 shares new common stock ($5 per share from $6.5 after costs andexpenses)d)
 
Inventory investment
 
Frequent delivery delays with five possibility inventories policies
Objectives
1.
 
To determine the financing requirements posed by growth, change of inventory policy, andintroduction of new product2.
 
To choose the best method of financing the production
Problems
The company`s financing opportunities were severely restricted by its current financial position andthe external financing possibilities was continued reliance on the reinvestment of earnings with no payment of dividends.

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