Do required 1-5. Thanks

Current 50,000 63,444 (1,077,323) 512,995) (449,551) (400,000) 563,000 613,000 $ (2,564,239) S(1,042,297) $ 613,423 0.36 Deferred (1,477,323) Net income (loss) Earnings per common share (1.51) S (0.61) $ Required: It's late January 2018, and Prudential and First Florida have hired you to act on their behalf in negotiations with Sunny Day Stores. Both lenders want to restructure their loans to address the company's current financial problems, and the restructured loans may require covenant changes page 331 Prudential and First Florida seek your advice on the type and amount of collateral to be required, revised interest rates, and possible changes to the payment schedules. In addition, the lenders have asked you to suggest new minimum net worth, working capital, and interest coverage ratios for 2018 and 2019. Specifically 1. What type and amount of collateral do you suggest be required? 2. Should a higher interest rate be charged? Why or why not? 3. What changes would you suggest be made to the payment schedule? 4. What new minimum net worth, working capital, and interest coverage limits would you suggest the lenders set? 5. Suppose the company asked permission to resume payment of its $0.12 per share dividend, which was suspended in 2016 What advice would you give Prudential and First Florida? C6-2 Sunny Day Stores: Analyzing debt covenants and financial distress (LO 6-72) Sunny Day Stores operates convenience stores throughout much of the United States. The industry is highly competitive, with low profit margins. The company's competition includes national, regional, and local supermarkets; oil companies; and convenience store operators A note to the 2017 financial statements described the company's long-term debt: page 329 Note payable to the Prudential Insurance Company of America "Prudential") with annual principal payments of $900,000, interest at 8.93%. Amount outstanding: $5,700,000 in 2017 and S6.600,000 in 2016. Term note payable to First Florida Bank ("First Florida" maturing in September 2022, with quarterly principal payments of $125,000 through June 30, 2018, and $250,000 thereafter, with interest at 1% in excess of prime (5.5% at December 26, 2017 Amount outstanding $3,563,956 in 2017 and S3,000,000 in 2016 Revolving note payable to First Florida with interest at 1% in excess of prime (55% at December 26, 2017 $7,400,000 in 2017 and 2016. Amount outstanding: Certain of the Company's loan agreements pertaining to the borrowings from Prudential and First Florida require the Company to maintain minimum interest coverage ratio, working capital, and net worth levels, impose restrictions on additional borrowings, and prohibit the payment of dividends. Specifically, at the end of fiscal 2017, Sunny Day must have a net worth of at least S22,850,000 working capital (on a FIFO inventory basis) must be at least $1,300,000, and the interest coverage ratio must be at least 1.6 The company's 2017 financial statements that follow show that Sunny Day Stores was not in compliance with these loan covenants at year-end Sunny Day Stores, Inc Comparative Balance Sheets December 31, December 31, 2017 2017 2016 2016 S 1,451,688 S 2,971,457 Cash and cash equivalents Accounts receivable less allowances for doubtful accounts of $82,000 and $63,000 in 2017 and 2016, respectively Accounts payable Trade Money orders Fuel taxes Accrued liabilities 9,237,416 S6,208,733 1,637,255 1,442,811 1,106,713 635,556 705,923 135,831 846,131 966,770 569,160 Current portion of long-term debt 1,956,3691082,429 Salaries and wages Self-insurance reserves State and local taxes 774,519 1,186,613 1,136,241 985,987 400,000 Refundable income taxes 8,690,734 (2,845,703) 5,845,031 Inventories-FIFO basis 10,640,125 (3,057,715) 7,582.410 Less: LIFO reserve Total inventories Total current liabilities 17,035,126 11,751,590 Prepaid expenses and other assets Refundable deposits 764,627 700,000 11,884,712 547,705 380,522 10,586,469 Deferred income taxes 400,000 ,477,323 111,426 Total current assets Property and equipment Unearned revenue 179,224 Land 11,016,168 13,603,304 Buildings 19,673,636 19,801,221 Long-term debt, less current portion 13,969,745 16,693,772 32,232,643 32,749,13.3 Fixtures and equipment Leaseholds and 5,084,679 4,929,748 improvements 71,083,406 68,007,126 (31,008,778) (28,988,173) Stockholders equity Common stock Less: Allowances for 170,165 170,165 depreciation and amortization 36,998,348 42,095,233 Additional paid-in capital Retained earnings 5,124,245 5,124,245 15,171,001 17,735,240 20,465,411 23,029,650 $51,981,708 $53,131,559 Other assets Land held for sale 2,641,735 456,913 Other 449,857 Total liabilities and stockholders equity Total assets $%51,981,708 $53,131,559 Sunny Day Stores, Inc. Statement of Cash Flows 2017 2016 2015 Cash flows from operating activities Net income (loss) Adjustments $(2,564,239) $(1,042,297) 613,423 Depreciation and amortization Deferred income taxes Gain on sale of property Decrease in unearned revenue 3,980,186 4,460,529 3.793.119 (1,077,323) (512,995)577,235 (532,570) (174,657) (100,322) 67,798) (83,804) (84,235) Changes in assets and liabilities (Increase) in accounts receivable (Increase) in refundable income taxes (Increase) in inventories (Increase) in other assets Increase in refundable deposits 53,12 (358,982) 244,085 13,675) 1,737,379) ,908,024 412,647 (263,981) (141,910)(241,347) (319,478) (15,107) (145,866) Increase in accounts payable and other lis 4,409,596 (4,304,076)3,807,200 3,847,020 2,433,210 7,545,774 1,282,781 1,390,913 8.159.197 (280,064) (264,169) Total adjustments Net cash flow operations Cash flows from investing activities Purchase of property and equipment, net (2,390,832) (2,871,399) (9,593,270) Sale of property and equipment Collections of notes and loans receivables 821,641 7,775 (952,463) (2,306,353) (8,763,854) 1,428,051 668,656 10,318(103,610) Net cash used in investing activities Cash flows from financing activities Issuance of long-term debt Dividends Payment of long-term debt 82,5152,633,4544,528,915 -0 (204,198) (1,932,602) (3,108,251) (1,588,391) (1,850,087) (474,797) 2,736,326 S(1,519,769) $(1,390,237) $ 2,131,669 Net cash provided by financing activities Net increase (decrease) in cash Sunny Day Stores, Inc. Statement of Operations 2017 2016 2015 Net revenue $217,710,782 $202,393,136 $191,243,016 Cost and expenses Costs of goods sold 176,102,027 158,643,287146,652,853 Selling, general, and administrative 44,631,749 43,687,70441,805,330 1,658,732 Interest expense-net Net gain from sale of property 1,551,138 (532,570) 1,728,650 (174,657) (100,322) 221,752,344 203,884,984 190,016,593 4,041,562) 1,491,848) ,226,423 Income (loss) before taxes Provision (benefit) for income taxes Current 50,000 63,444 (1,077,323) 512,995) (449,551) (400,000) 563,000 613,000 $ (2,564,239) S(1,042,297) $ 613,423 0.36 Deferred (1,477,323) Net income (loss) Earnings per common share (1.51) S (0.61) $ Required: It's late January 2018, and Prudential and First Florida have hired you to act on their behalf in negotiations with Sunny Day Stores. Both lenders want to restructure their loans to address the company's current financial problems, and the restructured loans may require covenant changes page 331 Prudential and First Florida seek your advice on the type and amount of collateral to be required, revised interest rates, and possible changes to the payment schedules. In addition, the lenders have asked you to suggest new minimum net worth, working capital, and interest coverage ratios for 2018 and 2019. Specifically 1. What type and amount of collateral do you suggest be required? 2. Should a higher interest rate be charged? Why or why not? 3. What changes would you suggest be made to the payment schedule? 4. What new minimum net worth, working capital, and interest coverage limits would you suggest the lenders set? 5. Suppose the company asked permission to resume payment of its $0.12 per share dividend, which was suspended in 2016 What advice would you give Prudential and First Florida