Debt analysis Springfield Bank is evaluating Creek Enterprises, which has requested a $4.,000,000 loan, to assess the firm's financial leverage and financial risk bn the basis of the debt ratios for Creek, along with the industry averages and Creek's recent financial statements, evaluate and recommend appropriate action on the loan request Industry averages Creek Enterprises Income Statement: m Debt ratio 0.51 Times interest eamed ratio 7.30 Creek Enterprises Balance Sheet: Fixed-payment coverage ratio 1.85 Creek Enterprises's debt ratio is (Round to two decimal places.) Creek Enterprises's times interest eamed ratio is (Round to two decimal places) Creek Enterprises's fixed-payment coverage ratio is (Round to two decimal places) Complete the following summary of ratios and compare Creek Enterprises's ratios vs. the industry average: (Round to two decimal places) Creek Industry Debt ratio 0.51 Times interest eamed ratio 7.30 Fixed-payment coverage ratio 185 Do you agree or disagree with the decision below? Because Creek Enterprises has a much higher degree of indebtedness and much lower ability to service debt than the average fiem in the industry, the loan should be rejected. (Select from the dnndwn mans Enter your answer in each of the answer boxes. Data Table ng Cre hancial the basis of th (Click on the icon located on the top-right corner of the data table below in order to copy its contents into a spreadsheet.) 0.5 7.3 1.8 Creek Enterprises Income Statement for the Year Ended December 31, 2015 Sales revenue Less: Cost of goods sold Gross profits nd to tw $30,000,000 21,000,000 atio is $9,000,000 Less: Operating expenses Selling expense General and administrative expenses Lease expense ge ratio $3,000,000 1,800,000 200,000 1,000,000 and com Depreciation expense Total operating expense Cr 6,000,000 Operating profits Less: Interest expense Net profits before taxes Less: Taxes (rate 40%) Net profits after taxes Less: Preferred stock dividends $3,000,000 1,000,000 $2,000,000 800,000 $1,200,000 100,000 n below? igher de Earnings available for common stockholders rejected $1,100,000 er boxes Print Done ASSULS Liduiliues dliu SocKTIOIuUrScyuty Current assets Current liabilities Cash $1,000,000: Accounts payable 3,000,000 Notes payable 12,000,000 Accruals $8,000,000 8,000,000 500,000 $16,500,000 Marketable securities Accounts receivable Inventories 7,500,000 Total current liabilities Total current assets $23,500,000 Long-term debt (includes financial leases)" Stockholders' equity Preferred stock (25,000 shares, $4.00 dividend) Common stock (1.00 million shares at $5.00 par) $20,000,000 Gross fixed assets (at cost)* Land and buildings $11,000,000 $2,500,000 Machinery and equipment Furniture and fixtures 20,500,000 8,000,000 $39,500,000 5,000,000 Gross fixed assets Paid-in capital in excess of par value Retained eanings Total stockholders' equity Total liabilities and stockholders' equity 4,000,000 Less: Accumulated depreciation Net fixed assets 13,000,000 $26,500,000 2,000,000 $13,500,000 Total assets $50,000,000 $50,000,000 The firm has a 4-year financial lease requiring annual beginning-of-year payments of $200,000. Three years of the lease have yet to run. Debt analysis Springfield Bank is evaluating Creek Enterprises, which has requested a $4.,000,000 loan, to assess the firm's financial leverage and financial risk bn the basis of the debt ratios for Creek, along with the industry averages and Creek's recent financial statements, evaluate and recommend appropriate action on the loan request Industry averages Creek Enterprises Income Statement: m Debt ratio 0.51 Times interest eamed ratio 7.30 Creek Enterprises Balance Sheet: Fixed-payment coverage ratio 1.85 Creek Enterprises's debt ratio is (Round to two decimal places.) Creek Enterprises's times interest eamed ratio is (Round to two decimal places) Creek Enterprises's fixed-payment coverage ratio is (Round to two decimal places) Complete the following summary of ratios and compare Creek Enterprises's ratios vs. the industry average: (Round to two decimal places) Creek Industry Debt ratio 0.51 Times interest eamed ratio 7.30 Fixed-payment coverage ratio 185 Do you agree or disagree with the decision below? Because Creek Enterprises has a much higher degree of indebtedness and much lower ability to service debt than the average fiem in the industry, the loan should be rejected. (Select from the dnndwn mans Enter your answer in each of the answer boxes. Data Table ng Cre hancial the basis of th (Click on the icon located on the top-right corner of the data table below in order to copy its contents into a spreadsheet.) 0.5 7.3 1.8 Creek Enterprises Income Statement for the Year Ended December 31, 2015 Sales revenue Less: Cost of goods sold Gross profits nd to tw $30,000,000 21,000,000 atio is $9,000,000 Less: Operating expenses Selling expense General and administrative expenses Lease expense ge ratio $3,000,000 1,800,000 200,000 1,000,000 and com Depreciation expense Total operating expense Cr 6,000,000 Operating profits Less: Interest expense Net profits before taxes Less: Taxes (rate 40%) Net profits after taxes Less: Preferred stock dividends $3,000,000 1,000,000 $2,000,000 800,000 $1,200,000 100,000 n below? igher de Earnings available for common stockholders rejected $1,100,000 er boxes Print Done ASSULS Liduiliues dliu SocKTIOIuUrScyuty Current assets Current liabilities Cash $1,000,000: Accounts payable 3,000,000 Notes payable 12,000,000 Accruals $8,000,000 8,000,000 500,000 $16,500,000 Marketable securities Accounts receivable Inventories 7,500,000 Total current liabilities Total current assets $23,500,000 Long-term debt (includes financial leases)" Stockholders' equity Preferred stock (25,000 shares, $4.00 dividend) Common stock (1.00 million shares at $5.00 par) $20,000,000 Gross fixed assets (at cost)* Land and buildings $11,000,000 $2,500,000 Machinery and equipment Furniture and fixtures 20,500,000 8,000,000 $39,500,000 5,000,000 Gross fixed assets Paid-in capital in excess of par value Retained eanings Total stockholders' equity Total liabilities and stockholders' equity 4,000,000 Less: Accumulated depreciation Net fixed assets 13,000,000 $26,500,000 2,000,000 $13,500,000 Total assets $50,000,000 $50,000,000 The firm has a 4-year financial lease requiring annual beginning-of-year payments of $200,000. Three years of the lease have yet to run