Fram Fibreglass Corp FFC is a private New Brunswick

company #1512
Fram Fibreglass Corp FFC is a private New Brunswick company

Fram Fibreglass Corp. (FFC) is a private New Brunswick company, using ASPE, that
manufactures a variety of fibreglass products for the fishing and food services industry. With the
traditional fishery in decline over the past few years, FFC found itself in a tight financial position
in early 2017. Revenues had levelled off, inventories were over- stocked, and most operating
costs were increasing each year.

The Royal Montreal Bank, which FFC has dealt with for 20 years, was getting anxious because
FFC's loans and line of credit were at an all-time high, with the most recent loan carrying an
interest rate of 15%. In fact, the bank had just recently imposed stipulations on FFC that
prevented the company from paying out any dividends or increasing its debt to equity ratio
above current levels without the bank's prior approval.

The vice-president of finance, Joe Blowski, CPA, knew that, with aggressive investment in new
equipment, the company could go after new markets in the construction industry. He had
investigated the cost of the necessary equipment and found that $50,000 of new capital
investment would allow the company to get started. All it needed was the financing. Joe set up
appointments with Kirk Cullen, the loans officer at the provincial Industrial Development Bank,
and with Heidi Hazen, the manager of the local office of Municipal Finance Corp.

Kirk Cullen was very receptive to Joe's request. He indicated that the Industrial Development
Bank would be interested in working with FFC, and could provide him with a lease on the
equipment he identified. Heidi Hazen also welcomed the business, suggesting a lease
arrangement between Municipal Finance Corp. and FFC as well. Two days later, Joe had
proposals from both lenders on his desk.

You are an accounting major and co-op student placed with FFC for your final work term. On his
way out of the office for a meeting, Joe provides you with the two proposals and asks, just
before the elevator door closes, "Would you please review these and give me your analysis and
recommendation on which proposal to accept, if either?" The details of the two proposals are as
follows:

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 Instructions

Prepare the required report for Joe.

Fram Fibreglass Corp FFC is a private New Brunswick company

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