Immediate Cash Requires
-In 1984 Jiffy Lube (JL) will have $750K thanks in paperwork payable. Combined with the new rates of interest it will take upon from auto financing 25% of its new franchise reports, JL will be operating at a loss of $727K. With circumstance on hand of only $139K, it will have to generate at least $750K to repay the paperwork due that year. -The company has $1. 4M in on-demand debt which is often called without notice. In reality, $1. 2M of that debt is to Jiffy Lube itself and Hindman. So of concern is definitely the remaining $146K from to other sources.
-The technique of supplying financing to new franchisee's really will only work if they're making money within the difference between the cost of acquiring the credit line as well as the rent they charge the franchisee. The truth gives a variety of 3K вЂ“ 4K each month. $3K monthly x twelve months = $36K per year. The charge to financing is 12% of $300K = $38. 05 the moment compounded month-to-month. So JL is actually Taking a loss. JL needs to keep it is rent on the higher variety of $4K / per month. And that is assuming their rate is usually 12%. In case their rate is higher than 12% this it should raise their rent appropriately.
You will find two primary issues that stick out in this case.
1 . Collection of Operation Rental Income
a. Real income by franchise rentals was $276, 000.
b. Based on the numbers given in the case, the income coming from franchise leases should be $864 in 1983. c. $864 was determined as follows:
we. Number of units where Jiffy Lube owned or operated the real-estate and leased to the franchisee: 24 (from Exhibit E) ii. Short time Lube recharged its dispenses a monthly local rental fee of $3K (from Exhibit E) which equals $36K annually. iii. $36K x 24 rented houses = $864K.
d. That's a shortage of $588, 000K
elizabeth. Accounts Receivable that season was $962, 000. So it's conceivable that the rental salary just we hadn't been paid out yet. In either case, this seems high and will become a matter for income because ofвЂ¦. 2 . Funds on hand
a. JL is usually...