In this memorandum the loan department of Frostbite National Bank recommends against approval
of a business loan to a local group that wants to open an ice creamparlor. In support of this
decision the loan department points out that Frostbite has a reputation for cold winters and
sales of ice cream decrease in cold weather. This latter point is buttressed by the fact that
Frostbite’s only ice cream parlor suffered a 10 percent decline in net revenues the previous
winter. The loan department’s decision is questionable for the following reasons.
To begin with, since it is reasonable to expect a decline in ice cream sales during winter months,
it is difficult to assess the relevance of the fact that Frostbite has cold winters to the
potential success of the Kool Kone franchise. Common sense suggests that this fact would be
significant only if it turned out that Frostbite’s winter season lasted 9 or 10 months as it
does in arctic regions. In that case slow sales could be expected for most of the year and the
loan department’s opposition to the loan would be readily understandable. If, on the other hand,
Frostbite’s winter season lasts only a few months and the remainder of the year is warm or hot,
it is difficult to comprehend the loan department’s reasoning.
　　Next, the loan department assumes that the Frigid Cow’s decline in net revenue last winter was
a result of slow sales occasioned by cold weather. While this is a possible reason for the
decline, it is not the only factor that could account for it. For example, other factors such as
poor business practices or lack of inventory could be responsible for the Frigid Cow’s loss of
revenue. The loan department’s failure to investigate or even consider these and other possible
explanations for the Frigid Cow’s decline in revenue renders their decision highly suspect.
　　In conclusion, the loan department’s decision is ill-founded. To better evaluate the decision,
we would need to know more about the length and severity of Frostbite’s winter season. Moreover,
evidence would have to be provided to support the assumption that the Frigid Cow’s loss of
revenue last winter was a direct result of the cold weather.