Looking at the financial statements below for a lumber company, how much money should a bank lend the firm through a 90-day unsecured bank note with 14% interest rate?

Note: there is a 50/50 chance in 1985 and after of a good/bad market condition. If the conditions are good, sales will go up to $2.5 million, if bad, will go down to 1.2 million.

Please show calculations and explanation, also explain how the D/E ratio and current ratio of the firm affects your loan decision.

Exhibit 1 Through Statements for the Years Ending December 31, 1982 Through 1984, and for the Three Months March 31 1985 ($000s First Quarter 1982 1983 9B4 1985 Net sales $1,187 $1,408 1,884 Cost of goods sold Beginning inventory 128 67 228 292 Purchases 894 1.428 4622 233 656 754 Ending inventory 167 228 292 389 Cost of goods sold 1,364 855 Gross profit 403 520 137 operating expense 360 46 122 Interest expense 14 23 Net ncome before income taxes 37 Provision for ncome taxes Net 21 24 31 6 In the first quarter of 1984 sales were $408,000 and net income was $4,000. aoperating expenses include a cash salary for Mr. Wilson of $45,000 in 1982, $50,000 in 1983, $55,000 in 1984, and $15,0000 in the first quarter of 1985. Mr. Wilson also received some of the prerequisites commonly taken by owners of privately held businesses Exhibit 2 Balance Sheets as of December 31, 1982-84 and March 31, 1985 (S000s) First Quarter 982 1983 984 985 Assets Cash Accounts receivable, net Inventory Tota current assets Property, net Tota assets Liab ties and Net Worth Note payable-Dank S102 $163 $173 Notes payable-1r. Stark 75 Notes payable-trade 10 Accounts payable 87 134 179 70 Accrued expenses 17 21 27 25 Long term debt-current portion Total current Liabilities 184 374 483 Long-term debt 45 40 35 Tota abilities 409 517 Net Worth 213 89 244 250 Total liabilities and net worth