- 30 Marks
CML – APR 2024 – L3 – Q2 – Critical Examination of Lending Proposition for Jmens Hardware Dealers Ltd
Critically examine a request from Jmens Hardware Dealers Ltd for Letters of Credit issuance for USD 480,000 (two trucks at USD 240,000 each), with 20% equity and bank funding the rest via a 7-year term loan.
Question
John Mensah aged 45 is the CEO of Jmens Hardware Dealers Ltd… your valued customers. He rose to the position of CEO when his father. Joseph Mensah passed away two years ago. He holds a first degree in Business Administration and has worked in his father’s company since he completed his National Service. Jmens has operated an account with your bank since inception. fifteen years ago.
The company’s account operations have deteriorated drastically following the passing of John’s father and John has explained to you that the situation arose from a dispute with his father’s friend. Joel Dadzie, aged 65, who had been the CEO since the inception of the company. This impasse was only settled when he agreed to the payment of a package for him to leave the business.
Now that he is in full control. John tells you that he has been able to streamline the operations of the business with the help of his bosom friend. Kwweku Bonsu aged 42 a Chartered Accountant, who worked for a construction company for ten years, prior to joining John to turnaround the business. John has also brought in an Operations Manager. Stephen Ooge, aged 47, a Procurement Management professional with vast experience in retail business having worked with Ogona Ventures, a well-known chain of supermarkets for a very long time. John holds an MBA in Finance from the University of Ghana.
The company has five outlets located on the outskirts of Tema and Accora where business is booming. Each of these outlets have an articulator truck that are devoted to the carting of the iron rods and cement and other goods from the manufacturers. He has now added two outlets, one at Mfnasa on the Nswwam Road, and the other on the Cape Coast Road, just beyond Kasoa. These outskirts have seen a boom in building activities in recent times and John plans to take advantage of this. He tells you that he would need two (2) more articulator trucks to serve the region.
John has established contact with manufacturers who are quoting a price of USD 240,000,00 per truck. The manufacturers are ready to give him a grace period of 6 months if he is able to secure Letters of Credit from a reputable bank covering the amount.
John is asking if your bank would agree to issue the Letters of Credit on behalf of his company to the manufacturers. He says he can come up with 20% of the cost of the vehicles and asks you if you could fund the difference and make full payment for the required Letters of Credit when it matures in six months’ time. He is willing to repay the bank back over a period of seven years. GHS1USD = GHS 13.5
Critically examine this proposition. [30 MARKS]
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