Bank Banker Bankrupt Brain

A small business client approaches a bank for working funds. He submits the completed loan application and is asked to meet the Bank Manager after a week. The conversation follows:

Bank Manager: We have gone through the application. You have asked for a bank limit of $ 10 million. But we can give only $ 1 million.

Client: That is very inadequate. The production cycle is long. Considering the stocks of raw material to be maintained, the work in process inventory, the high tech labor and the credit period we must get $ 10 million. Otherwise the business will crash-land.

Bank Manager: Your calculations are wrong. You have taken a high work in process inventory. This comes to $ 5 million. I can allow only 10% of this on this account.

Client: Sir, how did you arrive at the figure of 10%?

Bank Manager: We took the actual cost of the raw materials used in the work in process inventory.

Client: That is unfair. The labor that has gone into the work is highly skilled. It works on computerized precision equipments and the finished product will bring high value because of the value addition. The sales realization will be very high.

Bank Manager: That is all right. But we go by the actual cost of raw materials and not value addition. So you get only $ 1 million. That is all what we can do.
Client: Sir, what is the salary of your CEO.

Bank Manager: $ 500000 per year How is this relevant to your problem.

Client: Very much relevant. If you apply the same principle of costing he should not be paid more than $ 1000.

Bank Manager: Why?

Client : Because if you take the quantum of blood and bones in his body he is not worth more than that.

Bank Manager: I have no answer