Kota Fibres Ltd
Case #02: Kota Fibres LTD.

(Questions for Case Preparation)
The following questions will help you in the preparation and analysis of this case. Use these questions as a guide in your study of the case. However, do not limit yourselves to these questions only, but rather allow yourselves to expand your thinking and analysis of this case.

1. How did Mehta construct his financial forecast? Using the financial forecast, prepare to show the “cash cycle” of the firm (i.e., the flow of funds through the working-capital accounts of the firm).

2. Examine the exhibits in the case. On the basis of Mehta’s forecast, how much debt will Kota need to arrange for the coming year? Will Kota be able to repay the line of credit this year?

3. Why do Kota’s financial requirements vary across the year? What are the key determinants of Kota’s borrowing needs? Please exercise the spreadsheet model to identify the critical forecast assumptions.

4. Consider the four memos that Pundir received. Use your intuition KOTA FIBRES, LTD.

Ms. Pundir, the managing director and principal owner of Kota Fibres, Ltd., discovered the problem when she arrived at the parking lot of the company’s plant one morning in early January
2001. Trucks filled with rolls of fiber yarns were being unloaded, but they had been loaded just the night before and had been ready to depart that morning. The fiber was intended for customers who had been badgering Pundir to fill their orders in a timely manner. The government tax inspector, who was stationed at the company’s warehouse, would not clear the trucks for departure because the excise tax had not been paid. The tax inspector required a cash payment, but in seeking to draw funds for the excise tax that morning, Mr. Mehta, the bookkeeper, discovered that the company had overdrawn its bank account again—the third time in as many weeks. The truck drivers were independent contractors who refused to wait while the company and