Ray Murdoch and Section 1: Case study 1. study 1 - Ray Steve Brown - Commercial Equipment Finance 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 whethe 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 able to identify a benefit to the client and clearly identify which components of your recommendation form par 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. Applicant information Client Raymond Murdoch Current address: Unit 43, 25 High St Northville, and has lived there for six years Steven Brown 23 Desmond Lane Northville, and has lived there with Kate for seven years. They own property jointly. 9452 1212 Steve is married with no dependents Home phone: 9521 2121 Status Ray is divorced no dependent age children Age/date of birth 45 years 12/9/19XX 42 years 12/12/19XX Employment Self-employed business owner Income $100,000 per annum Property value $750,000 Cash at bank $12,500 Contents $100,000 Superannuation $250,000 Personal Death $250,000 insurances within superannuation Total and permanent disability $125,000 Income protection Nil Self-employed business owner $100,000 per annum $900,000 Owned jointly with wife Kate $9,600 $85,000 Steve $350,000, Kate $150,000 Steve Death $300,000 Total and permanent disability $250,000 Income protection Nil Kate Death $100,000 Total and permanent disability $125,000 Income protection Nil Wills No Motor vehicle $40,000 Home loan Credit card No $250,000 repayments $1,454 per month @ interest rate of 2.55% P & I, 18 years remaining $25,000 limit with current balance of $15,000, monthly payment calculated @ 3% of limit $55,000 $350,000 repayments $2,015 per month @ interest rate of 2.45%, P & 1, 22 years remaining $10,000 limit with current balance of $3,000, monthly payment calculated @ 3% of limit $15,000 repayment $746 p.m., remaining term 4 years $4,150 Car loan $0 Monthly living expenses $3,700 The business Business turnover Net profit after tax (NPAT) Earnings before interest, tax, depreciation & amortisation (EBITDA) Year 20X0 Year 20X1 $2,800,000 $3,200,000 $205,000 $226,000 $310,000 $340,000 Financials cover last 2 full financials years and can provide additional years if required. Overdraft limit current interest rate 5.5% Forklift loan remaining term 18 months at $682 per month Car loan 1 - remaining term 36 months at $738 per month Car loan 1 - remaining term 36 months at $711 per month Business insurances $100,000 Balance $12,280 Balance $26,600 Balance $25,600 Plant and equipment insurance - $400,000 Salary ($88,000) and director's fees ($12,000) to Raymond Murdoch (Note: Salary is sufficient to cover personal liabilities) Salary ($92,000) and director's fees ($8,000) to Steven Brown (Note: Salary is sufficient to cover personal liabilities) No other insurances stated. $100,000 $100,000 $100,000 $100,000 ACN: ABN: Business name: Business address: Shareholders Accountant 123 123 123 64 123 123 123 Pallets-R-Us Pty Ltd 1 Industrial Court, Hillside 2120 Raymond Murdoch -50% Steven Brown - 50% David Hill of David Hill Accountancy.