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GOVAN’S CATERING SUPPLIES 1. Comment on the performance of the company. 2. Why has this profitable company had to borrow so much money from the bank? 3. What overdraft would Govan expect to have if he continues with “business as usual”? 4. Should Govan take advantage of the 2½% settlement terms offered by his suppliers? Explain. 5. As Govan's financial adviser, would you encourage him to go ahead or reconsider his anticipated expansion and his plans for its financing? What should he do? 6. As his banker would you approve his loan request? If so, would you put any conditions on the loan? 7. (Optional extra question…) Estimate a selling price for the business. GOVAN’S CATERING SUPPLIES After…show more content…
As part of its customary investigation of prospective borrowers, Investec Bank sent inquiries concerning Govan to a number of firms that had business dealings with him. The manager of one of his large suppliers, the CaterTech Company, wrote in answer: The conservative operation of his business appeals to us. He has not wasted his money in disproportionate investments. His operating expenses are as low as they could possibly be. He has personal control over every feature of his business, and he possesses sound judgement and a willingness to work harder than anyone I have ever known. This, with a good personality, gives him an excellent turnover. All of the other trade letters received by the bank bore out this opinion. In addition to the ownership of his catering supplies business, which was his major source of income, Govan jointly owned, with his wife, a small holiday cottage. The cottage cost R500 000 to build on in 2009 and was mortgaged for R270 000. He also held a R500 000 life insurance policy, payable to his wife, who also owned independently, a half interest in a home worth about R400 000. Otherwise, they had no sizable personal investments. The bank gave particular attention to the debt position and current
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