ENTR 386 – Final Project 2016 Mountain Industries is a wholesaler dealing in the business-to-business (B2B) space. Mountain was founded by Chris Jones and has been in business for three years. Despite...

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ENTR 386 – Final Project 2016
Mountain Industries is a wholesaler dealing in the business-to-business (B2B) space. Mountain
was founded by Chris Jones and has been in business for three years. Despite turning a small
profit in 2015, the company is facing a few challenges. First, Chris had little to no business
experience when he started and had to heavily bootstrap the venture. This resulted in Chris
paying cash-on-delivery (COD) or using credit cards to buy inventory, a practice that continues
today. Second, since Mountain is B2B, all of its sales are on account and Mountain has had some
difficulties collecting from customers in a timely manner. Chris is seeking your help to get his
usiness on-track and increase his profitability.
The following is Mountain’s projected profit and loss statement for 2016:
Mountain Industries Inc.
Profit & Loss Statement
December 31, 2016 (Projected)
Sales
$540,900
Cost of Goods Sold
260,600
Gross Profit
280,300
Operating Expenses
264,000
Income from Operations
16,300
Interest Expense
4,100
Income Before Taxes
12,200
Income Taxes (30%)
3,660
Net Income
$8,540
Items to know:
1. Mountain’s average retail price for their items is $52.26.
2. Chris estimates that he pays for about 40% of cost of goods sold inventory on the
company credit card with the other 60% being paid for COD.
3. There is a 25 day grace period on the credit card and Chris typically pays the bill on time
to avoid a late fee.
4. The cost of funds (operating notes, tying up cash, etc) to Mountain is 7%.
5. Mountain’s credit terms to customers are “Net 30.” The following is an aging schedule of
the receivables (there are cu
ently no bad debts):
48% pay in 30 days
19% pay in 40 days
13% pay in 50 days
10% pay in 60 days
7% pay in 70 days
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2% pay in 80 days
1% pay in 90 days
6. The following is a list of Mountain’s suppliers, percent of inventory Mountain orders
from each, and the credit terms each supplier offers that Mountain is not taking advantage
of:
General Supply Inc. Terms: Net 35 Days. Mountain buys 29% of inventory from
General.
Bilkin Inc. Terms: Net 40 Days.Bilkin supplies Mountain with 21% of its
inventory.
AC Corp. Terms: Net 35 Days. Mountain purchases 18% of its inventory from
AC.
AXcess Supply Inc. Terms: Net 45 Days. Mountain buys 32% of its inventory
from AXcess.
7. Mountain’s cu
ent inventory turnover is about 10.8 times.
8. A significant portion of Mountain’s interest expense is attributed to financing of the
cu
ent cash gap. The rest is related to fixed asset financing and will not change
egardless of.
Chris has done some research on businesses in his industry and realizes other wholesalers offer
terms of 3/10 Net 30, allowing customers to take a three percent discount if they pay their
account balances within 10 days of the monthly invoice date. Chris’s accountant ran some
simulations and determined that not only would offering a discount increase projected sales for
2016 by about 1.5%, but inventory turnover would likely rise to 11.2 times. In addition, the
aging schedule of collections is projected to change to look like the following:
25% pay in 10 days (taking the discount)
40% pay in 30 days
9% pay in 40 days
8% pay in 50 days
7% pay in 60 days
6% pay in 70 days
4% pay in 80 days
1% pay in 90 days
Operating expenses are not expected to be immediately impacted by the proposed...