820 100 128 A-4.1 Conday Ltd., a small privately held firm, has been in operation for three years and produces antique repro- duction furniture for the export market. The most recent set of financial statements is shown below. Conday Ltd. Balance Sheet as at November 30, 2010 (in $ thousands) Current assets Accounts receivable Inventory 600 Total current assets 1,420 Property, plant, and equipment Land Buildings 228 Less: Accumulated depreciation 100 Plant and equipment 942 Less: Accumulated depreciation 180 762 Total property, plant, and equipment 990 Total assets 2,410 Current liabilities Bank overdraft 432 Accounts payable 665 Income taxes payable 48 Total current liabilities 1,145 Long-term liabilities 9% Bonds payable (Note 1) 200 Total liabilities 1,345 Shareholders' equity Common shares (700,000 shares outstanding) 700 Retained earnings 365 Total shareholders' equity 1,065 Total liabilities and shareholders' equity 2,410 Total liabilities and shareholders' equity 2,410 Conday Ltd. Income Statement for the year ended November 30, 2010 (in $ thousands) Sales (all on credit) Less: Cost of goods sold Gross profit Less: Selling and distribution expenses (Note 2) 408 Administration expenses 194 Interest expenses 58 Earnings before taxes Less: Income tax expense Net income 2,600 1,620 980 660 320 95 225 Copyright 2012 Pearson Canada Inc. 42 Conday Ltd. Statement of Retained Earnings for the year ended November 30, 2010 (in $ thousands) Opening retained earnings, December 1 Add: Net income Less: Dividends paid Closing retained earnings, November 30 300 225 (160) 365 Notes 1. The bonds are secured by the land and buildings. 2. Selling and distribution expenses include $170,000 of bad debts expense. 3. The company has invited an investor to buy a new issue of common shares in the business at $6.40 each, making a total investment of $200,000. Management wishes to use the funds to finance a program of further expansion. Required: (a) Analyze the financial position and performance of the business and comment on any features that you consider to be significant. (b) State, with reasons, whether or not the investor should invest in the business on the terms outlined