Case: Jackson Masonry Part 2: Loan Request See Part I for additional background information. Current date: late January 2010 During a recent visit to Jackson Masonry, you met with both William and Billy Jackson. They explained a few changes that will be implemented over the next year. First, William is retiring as CEO and will no longer be involved in the day to day management of the firm, although he will retain his position as Chairman of the Board. Billy will assume the role of CEO while Andrew and Michelle will retain their current positions. Each family member agrees that this new structure is the best alternative. Also during the meeting, William and Billy expressed how significant the impact of energy cost is in the production of brick. In order to improve the efficiency of its operations, Jackson Masonry is planning to convert its three coal-fired kilns to natural gas kilns, which are less expensive to operate. The new equipment and conversion will cost $1.2 million. The company has requested a $1.2 million loan from BNB and has offered to secure the loan with all fixed assets. Jackson Masonry has formulated operating projections for 2010. Management projects sales of $2.5 million which they consider conservative considering the long term trend of sales growth. They believe COGS will fall to S750,000 with the more efficient kilns. The kilns are expected last over 30 years, but they will be depreciated on a 10 ycar straight line basis with 0 salvage value. For the projected income statement, rental expense will remain at $12,000. Expenses other than COGS and rent are expected to be the same percentage of sales for 2010 as they were in 2009, but adjustments are needed for additional interest expense and depreciation. The income tax rate is 30%, and dividends will remain at $60,000. On the balance sheet, fixed assets will increase by $1.2 million for the new kilns, no change in other long term assets, all current assets other than cash will increase by 5% over 2009, and accounts payable and the operating line ofcredit will also increase by 10%. The first payment on the loan would be due in January of 2011 The company would like the loan set up on a 20 year amortization. If approved, the loan rate would be set at 2% over prime (prime is currently 3.25%) fixed for one year at a time. The loan would be reviewed annually. This would be one of the largest single loans that BNB has made. Assignment Using the balance sheet, income statement and cash flow statement from part 1, add the projections to each statement for 2010 Perform a ratio analysis for the 2010 projections