Kevin,
<<SCENARIO(2) GRIN receives their $8M option money and uses this plus YTD net
profit plus depreciation cash to buy their inventory.>>
Very nice and well thought out. Except for the little detail that, well, we sort
of know already what GRIN did with the $8M.
SCENARIO(REALITY) GRIN receives their $8M option money and, instead of buying a
CD with it, or buying inventory with it, instead takes the whole wad, plus another
$38K from YTD profits, and hands it over to their bank in order to pay off their
line of credit. The cash is no longer GRIN's, and therefore cannot count towards
their year-end cash position, unless GRIN elects to borrow it back in Q4.>>
Looks to me like my scenario(2) and your scenario(reality)
is like me saying 'six' and you saying 'half a dozen', apart
from one minor difference.
First, let's run with your scenario(reality) and make sure
that GRIN's value does actually increase by $8M....
If GRIN's value just before receipt of option cash is $X M
then GRIN's value just after they receive the option cash and
pay off the $8M credit line debt is $(X+8)M.
...yes, the company's value has still increased by $8M, the
same as in scenario(2). The only difference is some credit
line interest is incurred between Christmas inventory purchase
and payoff with the $8M option cash (say $10k or $20k for that
interest). That means my final year-end estimate for GRIN's cash
position, based on your scenario(reality) would now be $10.98M
(assuming only the present partial option exercise), instead of
$11M for scenario(2).
Frank McV |
