Halifax Products has a $1 million bank loan that comes due next year. Management has prepared cash flow forecasts for each of the next six quarters, as shown in the table below. Planned capital expenditures are intended to replace failing manufacturing equipment, upgrade computer systems, and refurbish the company presidents office. These forecasts have been shared with the bank loan officer responsible for overseeing the Halifax loan.

	Y1Q1	Y1Q2	Y1Q3	Y1Q4	Y2Q1	Y2Q2
Scheduled loan payments									$	500,000	$	500,000
Forecasted cash flows:
Cash from operations	$	200,000	$	250,000	$	300,000	$	240,000		200,000		220,000
Capital expenditures		(150,000)				(150,000)				(175,000)
Dividends to owners										(50,000)

Required:

1. Explain why the loan officer might consider the Halifax loan to be of high credit risk.

2. What steps can company management take to reduce the loans credit risk?

3. What steps can the bank loan officer take to reduce the loans credit risk?