Commercial Equipment Finance Case Study – Accounting and Finance Assignment Help

Background:

You have just met with Raymond Murdoch and Steven Brown, referred to you by another commercial client.

Ray and Steve jointly own a successful and growing business that manufactures metal pallets. They trade under the name Pallets-R-Us Pty Ltd. The pallets are manufactured using material that is lightweight and durable. There has also been a very structured approach to the research and development for the engineering and design of the pallets. The pallets are used in all industry sectors. Part of the process involves powder coating the finished product, which is currently outsourced to a local well-established contractor.

It is critical that Ray and Steven’s product meets market needs. They need to maintain sustainable production, quality control and reduced operating costs if they are to meet their forecast sales and cost of sales.

They have a well-established client base that provides them with repeat ‘business-to-business’ dealings. They have been trading for five years and have a solid business plan with written supply contracts with three major business clients and several smaller business clients.

Ray and Steven now require finance to assist them with the purchase of a sophisticated machine that uses the technical platform system CNC. This machine can be programmed to rapidly fabricate multiple components. The machine has an expected commercial lifespan of at least 15 years with the operating software to be updated every three years for the first 12 years. The software and upgrades are included in the purchase price of $800,000 inclusive of GST. The clients have sufficient funds to cover the $20,000 installation costs of the machine. They have not yet spoken to their accountant; however, they think that maybe they want an asset lease to finance the machine. They have asked if it is possible to have the asset lease facility be repaid over seven (7) years.

The clients have also asked about the ability to make extra payments, or payout the loan early and whether any penalties would apply. They have asked what fees are involved, including any fees that would need to be paid to the broker.

As their broker, you can also recommend other products such as Chattel Mortgage, provided you are ableto identify a benefit to the client and clearly identify which components of your recommendation form part of the credit assistance you are providing, and which components should be subject to qualified advice. Their business employs five people. The new machine will enable them to take on new contracts with an expected increase in business through the automation of production. They have forecast that they will need to recruit an additional two staff members in the next 3–6 months to meet sales/production demands.

Ray has been in the metal fabrication field all his working life. He has an MBA and understands financial management. He also has solid engineering skills and developed the majority of the design works for the business. He is divorced and has no dependants. Steve is married and his wife Kate is a school teacher.

Steve worked with Ray at ‘Protech’ as a foreman. His skills are in production and managing project/work flow. He has high level technical skills and can complete works to specification at a high standard. Steve and Ray have provided the last two years financial statements for the trading business. 

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