James Madison University Operations And Supply Chain Management Assignment Help - Venice InLine

Question - Venice InLine, Inc., was founded by Russ Perez to produce a specialized in-line skate he had
designed for doing aerial tricks. Up to this point, Russ has financed the company with his own sayings
and with cash generated by his business. However, Russ now faces a cash crisis. In the year just
ended, an acute shortage of high-impact roller bearings developed just as the company was
beginning production for the Christmas season. Russ had been assured by his suppliers that the roller
bearings would be delivered in time to make Christmas shipments, but the suppliers were unable to
fully deliver on this promise. As a consequence, Venice InLine had large stocks of unfinished skates
at the end of the year and was unable to fill all of the or ...Read More ders that had come in from retailers for the
Christmas season. Consequently, sales were below expectations for the year, and Russ does not
have enough cash to pay his creditors. W ell before the accounts payable were due, Russ visited a
local bank and inquired about obtaining a loan. The loan officer at the bank assured Russ that there
should not be any problem getting a loan to pay off his accounts payable—providing that on his most
recent financial statements the current ratio was above 2.0, the acid-test ratio was above 1.0, and net
operating income was at least four times the interest on the proposed loan. Russ promised to return
later with a copy of his financial statements.
Russ would like to apply for a $80,000 six-month loan bearing an interest rate of 10% per year. The
unaudited financial reports of the company appear below:

Required:
Based on the unaudited financial statements on the prior page and the statement made by the loan
officer, would the company qualify for the loan?
Last year Russ purchased and installed new, more efficient equipment to replace an older plastic
injection molding machine. Russ had originally planned to sell the old machine but found that it is still
needed whenever the plastic injection molding process is a bottleneck. When Russ discussed his
cash flow problems with his brother-in-law, he suggested to Russ that the old machine be sold or at
least reclassified as inventory on the balance sheet because it could be readily sold. At present, the
machine is carried in the Property and Equipment account and could be sold for its net book value of
$45,000. The bank does not require audited financial statements. What advice would you give to
Russ concerning themachine? ...Read Less

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