INTRODUCTION Early one morning in March, Jordan Buford was preparing his daily work when his boss, Olivia Anton, approached him and announced, Little Annin Flagmakers (LAF) has submitted an application for a line of credit (LOC) for April through June. I want you to prepare budgeted financial statements similar to the ones you prepared for our last LOC applicant. I need this by 3 p.m. today for the 4 p.m. credit committee meeting. Be prepared to make a loan recommendation and to address questions from the credit committee. I have cleared your schedule. Let me know if you need anything. Kent Bank is a state bank with multiple branches that offers a variety of services for personal and commercial needs. The bank has been serving the local community for more than 110 years and prides itself on its personalized approach to provide financial services, local management, long-term stability, and a full range of deposit and lending products and services. Commercial credit decisions at Kent Bank are made by the Commercial Credit Committee, which consists of the senior commercial credit analyst and two vice presidents. Buford was recently hired by Kent Bank as a commercial credit analyst to provide analysis for commercial loan applications. During his undergraduate studies, he studied accounting and finance, and shortly after graduation passed the CMA (Certified Management Accountant) examination. Buford reports directly to Anton, the senior commercial credit analyst who has been with Kent Bank for 10 years. As Buford began the work, he recalled his last LOC analysis and how well received it was. He had taken the information provided by the company and developed master budgets in Excel that used an input section with numbers that could be changed for assessing different scenarios. The committee had specifically asked about the effect of a sales reduction of 2%, 5%, and 10% on the applicants cash needs. He wanted to be prepared for these types of questions.

LOAN DETAILS LAF has requested a line of credit of US$60,000 to cover production costs during the seasonal increase in business. Kent Bank uses the following terms on its lines of credit. All borrowing is done at the beginning of the month in whole dollar increments. All repayments are made at the end of the month in whole dollar increments. The full line of credit is expected to be paid off by the end of the quarter with all the interest repaid at the end of the quarter. The interest rate on this loan is 16% per year.

Requirement:

1. Determine a credit recommendation for Kent Bank, to lend or not. Be prepared to justify your credit decision. (explain and expound 10-15 sentences)