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Debt analysis Springfield Bank is evaluating Creek Enterprises, which has risk. On the basis of the debt ratios for Creek, along with the industry averages

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Debt analysis Springfield Bank is evaluating Creek Enterprises, which has risk. On the basis of the debt ratios for Creek, along with the industry averages (see top of page 103) and Creek's recent financial statements (following), evaluate and requested a $4,000,000 loan, to assess the firm's financial leverage and financial recoinnend appropriate action on the loan request. - . : Creek Enterprises Inconie Statement for the Year Ended December 31, 2012 $30,000,000 Sales revenue Less: Cost of yoods sold 21,000,000 Gross profits $.9,000,000 Less: Operating expenses Selling expense 5.3,000,000 General and administrative expenses 1,800,000 Lease expense 200,000 Depreciation expense 1,000,000 Total operating expense $ 6,000,000 Operating profits $ 3,000,000 Less: Interest expcasc 1,000,000 Net profits before taxes $ 2,000,000 Less: Taxes (rate = 40%) 800.000 Net profits after taxes $ 1,200,000 Less: Prefccred stock dividends 100,000 Earnings available for common stockholders $ 1,100,000 Industry averages Creek Enterprises Balance Sheet December 31, 2012 0.51 Debt ratio Times interest earned to Fusted-payment Assets 7.30 coverage ratio 1.35 Cash Marketable securities Accounts receivable Inventories Total current assets Land and buildings Machinery and equipment Furniture and fixtures Liabilities and Stockholders' Equity $ 1,000,000 Accounts payable $ 8,000,000 3,000,000 Notes payable 8,000,000 12,000,000 Accruals 500,000 7.500,000 Total current liabilities $16.500,000 $23.500,000 Long-term debt (includes $11,000,000 financial leases) $20.000.000 20,500,000 Preferred scock (25,000 8.000.000 shares, $4 dividend) $ 2,500,000 Gross fixed assets (at cost)" $39,500,000 Common stock (1 million 13.000.000 Less: Accumulated depreciation 5,000,000 shares at $5 par) Net fixed assets $26.500.000 Paid-in capital in excess of Total assets $50.000.000 par value 4,000,000 Retained carnings 2.000.000 Total stockholders' equity. $13.500,000 Total liabilities and stucicholders' cquity $50,000,000 'The firm has a 4-year financial lease requiring annual beginning-of-year payments of S200,000. Three years of the lease have yet to cun. Required annual principal payments are $800,000

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