RPI, Inc. Income Statement For the Year Ended 12/31/2019 Sales (all credit) Less: Cost of goods sold Gross profits Less: Operating and interest expenses General and administrative $700,000 500,000 $200,000 $50,000 Depreciation Total 30,000 80.000 $120,000 10,000 $110,000 Profit beforc Interest and taxes (EBIT) Less: Interest Profit before taxes Less: Taxcs 27.100 Net income available S82.900 to common stockholderS Less: Cash dividends 31.800 $51,100 Change in retained earnings Liabilities and Stockholders' Equity 2018 $48,000 16,000 6,000 $70,000 $160,000 $172.200 $402.200 2019 $55,000 13,000 5,000 $73.000 $150,000 $223,300 $446,300 Accounts payable Notes payable Accruals Total current liabilities Long-term debt Common stockholders' equity Total liabilities and equity marks) RPI, Inc. is a manufacturer and retailer of high-quality sports clothing and gear. The firm was started several years ago by a group of serious outdoor enthusiasts who felt there was a need for a firm that could provide quality products at reasonable prices. The result was RPI, Inc. Since its inception, the firm has been profitable with sales that last year totaled $700,000 and assets in excess of $400,000. The firm now finds its growing sales outstrip its ability to finance its inventory needs. The firm now estimates that it will need a line of credit of $100,000 during the coming year. To finance this funding requirement, the management plans to seek a line of credit with its bank. The firm's most recent financial statements were provided to its bank as support for the firm's loan request. Joanne Peebie, a loan analyst trainee for the Morristown Bank and Trust, has been assigned the task of analyzing the firm's loan request. RPI, Inc. Balance Sheets for 12/31/18 and 12/31/19 Assets 2018 2019 Cash $16,000 7.000 $17,000 7,200 38,000 93,000 Marketable securities Accounts receivable Inventory Prepaid rent Total current assets Net plant and cquipment Total assets 42,000 50,000 1.200 $116.200 286.000 $402.200 1.100 $156.300 290.000 $446.300 a. Calculate the financial ratios for 2019 corresponding to the industry norms provided below: (13 Marks) Ratio Norm Current ratio 1.80 Acd-test ratio 0.90 Debt ratio 0.50 Long-term debt to total capitalization 0.70 Times interest earned 10.00 Average collection period Inventory turnover (based on COGS) Return on total assets 20.00 7.00 8.40% Gross profit margin Operating income return on investment Operating profit margin Total asset turnover Fixed asset turnover 25.0% 16.8% 14.0% 1.20 1.80 b. Which of the ratios reported above in the industry norms do you feel should be most crucial in determining whether the bank should extend the line of credit? Why? (4 Marks) c. Use the information provided by the financial ratios to decide if you would support making the loan. (3 Marks)