This scenario assumes an economic slow down and the slow down of the once rapidly growing suburb Clarkson Lumber operates within. Because of the nature of Clarkson Lumber’s repair business the case book mentions; slow growth of five percent would be expected for the company, instead of a flat or negative growth rate. Because of the slow growth rate, the inflator for Clarkson Lumber is set to the inflation rate of four percent, limiting growth rates of variable costs, fixed costs, and capital replacement. Because of the low growth rate, working capital needs will become almost flat and there will be no expansion costs within the foreseeable future. Further, in this scenario I would expect Clarkson Lumber to take advantage of some trade discounts and avoid using payable trade accounts as cash and credit become available while gross debt is paid off, moving the v-factor down to 73.5 percent and the w-factor up to 16.5
This scenario assumes an economic slow down and the slow down of the once rapidly growing suburb Clarkson Lumber operates within. Because of the nature of Clarkson Lumber’s repair business the case book mentions; slow growth of five percent would be expected for the company, instead of a flat or negative growth rate. Because of the slow growth rate, the inflator for Clarkson Lumber is set to the inflation rate of four percent, limiting growth rates of variable costs, fixed costs, and capital replacement. Because of the low growth rate, working capital needs will become almost flat and there will be no expansion costs within the foreseeable future. Further, in this scenario I would expect Clarkson Lumber to take advantage of some trade discounts and avoid using payable trade accounts as cash and credit become available while gross debt is paid off, moving the v-factor down to 73.5 percent and the w-factor up to 16.5