4) If you were the bank loan officer would you recommend renewing the loan or demand its repayment? Would your actions be influenced if, in early Year 2, Computron showed you its projection plus proof that it was going to raise over $1.2 million of new equity capital?

Computron Industries is a manufacturer of electronic calculators.The company doubled its plant capacity, opened new sales offices outside home territory and launched an expensive advertising campaign in Year 1.The weighted average cost of capital was 11% in Year 0 and 13% in Year 1.Computrons results were not satisfactory. Suppliers were being paid late and the bank was complaining about the deteriorating situation and threatening to cut off credit.

Year 0 and Year 1 data are actual whereas Year 2 data is projection.

	Year 2 ($)	Year 1 ($)	Year 0 ($)
Assets
Cash	14.000	7.282	9.000
Short-term Investments	71.632	-	48.600
Account receivables	878.000	632.160	351.200
Inventories	1.716.480	1.287.360	715.200
Total Current Asset	2.680.112	1.926.802	1.124.000
Gross Fixed Asset	1.197.160	1.202.950	491.000
Liabilities and Equity
Account Payables	436.800	524.160	145.600
Notes Payable	600.000	720.000	200.000
Accruals	408.000	489.600	136.000
Total Current liablities	1.444.800	1.733.760	481.600
Long term debt	500.000	1.000.000	323.432
Common stock	1.680.936	460.000	460.000
Retained Earnings	- 128.584	- 327.168	203.768
Total Equity	1.552.352	132.832	663.768
Total Equity and Liabilities	3.497.152	2.866.592	1.468.800

	Year 2 ($)	Year 1 ($)	Year 0 ($)
Sales	7.035.600	5.834.400	3.432.000
Cost of Goods Sold	- 6.100.000	- 5.728.000	- 2.864.000
Other Expenses	- 312.960	- 680.000	- 340.000
Depreciation	- 120.000	- 116.960	- 18.900
Total Operating Cost	- 6.532.960	- 6.524.960	- 3.222.900
EBIT	502.640	- 690.560	209.100
Interest Expense	- 80.000	- 176.000	- 62.500
EBT	422.640	- 866.560	146.600
Taxes (40%)	- 169.056	346.624	- 58.640
Net Income	253.584	- 519.936	87.960