Kota Fibres Ltd

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Case #02: Kota Fibres LTD. (Questions for Case Preparation) The following questions will help you in the preparation and analysis of this case. Use these questions as a guide in your study of the case. However, do not limit yourselves to these questions only, but rather allow yourselves to expand your thinking and analysis of this case. 1. How did Mehta construct his financial forecast? Using the financial forecast, prepare to show the “cash cycle” of the firm (i.e., the flow of funds through the working-capital accounts of the firm). 2. Examine the exhibits in the case. On the basis of Mehta’s forecast, how much debt will Kota need to arrange for the coming year? Will Kota be able to repay the line of credit this year? 3. Why do Kota’s…show more content…
If we consider to these two memos, I think the most liable to relive to support Kota’s ability to “clean up” its bank loan by the end of 2001 it the level-production proposal. Mr. Pundir is recommended to take the level-production proposal by undertakes level production just after the peak. 5. The bank require 30-day “clean up” of the loan to ensure that money lent under a line-of-credit (short-term loans) do not turn into long-term loans and can make a full repayment at the due date. The seasonal line of credit had to be cleaned up for at leas 30 days each year (the usual clean up month had been October in this case). Yes, the bank should still waive compliance with this covenant to monitor the lender and make sure the lender can make a full repayment at the due date. 6. 3 most important actions / policies that Mr. Pundir should take: a. 30 day inventory policy and Partial JIT– to prevent inventory overload and free up a lot of space in the warehouse. b. Level Production – Undertakes the level production just after the peak. c. 0 Dividends in 2001 – Split off strategy / Increase share holders stock strategy. To Bank: Plan to obtain the long term and fixed rate loan from the bank in order to align Kota’s capital expenditures with long term debt. To Customers: 2%-5% discount-Net 30 – to attract customer pay

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