The growth in sales over the past years for Hemingway Fence, Inc. has brought about the need to assess their future financial position. In doing so, it was determined that in order to sustain its growth, external financing would be necessary. Because a large part of the projected increase in assets can be attributed to an increase in fixed assets, a long-term loan was found to be the most practical solution. The group strongly believes that an equipment lease for the new equipment would best service this need because it would reduce the company’s full amount of required external financing and provide tax incentives as well. Along with this source of external financing, new policies will also be implemented such as the modification of the pay as you go policy, as well as the declaration of dividends, policies for trade credit and the improvement for the collection of accounts receivable, which would give the company more working capital to supplement the growth in operations.
I. Case Context
Hemingway Fence, Inc., is a hundred year old company specializing in the production of fencing materials. It started by producing fencing materials heavily demanded by the farms following the civil war. It has then expanded its line of products to residential-fencing equipment and decorative wood fences. Subsequently, it began to produce almost all types of home-fencing equipment by the 1980’s.
The management of the company had always firmly upheld a conservative “pay as you go policy” that kept debt financing at a minimal, usually only to service temporary short-term needs. Unfortunately, the rapid growth in sales coupled with the necessity ...