Business 101, Case Study #1 What is wrong with this picture?
FACTS
In April 1999, the government of the Virgin Islands borrowed $35,000,000 in order to meet its payroll. On the last day in September, one day before the new 1999/2000 budget year, the governor urged the senators to approve a new $100,000,000 bond bill. Among other items the governor needs the money to pay off the $35,000,000 borrowed in April, and, why are we not surprised, meet payroll expenses in November.
QUESTION
How long can a business survive if it must continue to borrow money to 1)pay off previous borrowing, 2) pay ongoing (November) payroll obligations?
BONUS POINTS
Describe:
1. How the VI government will pay off the $100,000,000 when it is due?
2. How the VI government will pay the annual interest, estimated at $900,000?
3. What is the net amount the VI government will have after repaying the existing $35,000,000 loan, broker fees, insurance, etc.?
4. When and how much will the VI government need to borrow to repay this bond?
SOLUTIONS may be sent to Doc Johnson at djohnson@islands.vi for grading.
Drew 'Doc' Johnson
St. Thomas
