Paul Sabin organized Sabin Electronics 10 years ago in order to produce and sell several electronic devices on which he had secured patents. Although the company has been fairly profitable, it is now experiencing a severe cash shortage. For this reason, it is requesting a $500,000 long-term loan from Gulfport State Bank, $100,000 of which will be used to bolster the cash account and $400,000 of which will be used to modernize certain key items of equipment. The company's financial statements for the two most recent years follow Last Year SABIN ELECTRONICS Comparative Balance Sheet This Year Assets Current assets: Cash $ 54,800 Marketable securities Accounts receivable, net 383.000 Inventory 767,000 Prepaid expenses 16,200 $ 88,000 10,400 176,000 352.000 13,000 Total current assets Plant and equipment, net 1,221,000 1,000,000 639,400 810,600 Total assets $2,221,000 $1,450,000 Liabilities and Shareholders' Equity Liabilities: Current liabilities Bonds payable, 12% $ 636.000 300,000 $ 481,000 300,000 Total liabilities 936,000 781,000 197,000 197,000 Shareholders' equity: Preferred shares, no par ($6; 15,760 shares issued) Common shares, no par (unlimited authorized, 20,000 issued) Retained earnings 200.000 888,000 200.000 272,000 Total shareholders' equity 1,285,000 $2,221,000 669,000 $1,450,000 Total liabilities and shareholders' equity SABIN ELECTRONICS Comparative Income Statement This Year Sales $4,000,000 Less: Cost of goods sold 3,075,000 Last Year $3,550,000 2,800,000 Gross margin Less: Operating expenses 925,000 520,000 750,000 445,000 Net operating income Less: Interest expense 405,000 36,000 305,000 36,000 Net income before taxes Less: Income taxes (30%) 369.000 110,700 269,000 80,700 Net income 258,300 188,300 Dividends paid: Preferred dividends Common dividends 20.000 72,000 20,000 61,000 Total dividends paid 92.000 81,000 Net income retained Retained earnings, beginning of year 166.300 550,000 107,300 442,700 Retained earnings, end of year $ 716,300 $ 550,000 During the past year, the company introduced several new product lines and raised the selling prices on a number of old product lines in order to improve its profit margin. The company also hired a new sales manager, who has expanded sales into several new territories. Sales terms are 2/10, n/30. All sales are on account. Assume that the following ratios are typical of firms in the electronics industry: Current ratio Acid-test (quick) ratio Average age of receivables Inventory turnover in days Debt-to-equity ratio Times interest earned Return on total assets Price-earnings ratio 2.5 to 1 1.3 to 1 18 days 60 days 0.90 to 1 6.0 times 13 % Required: 1. To assist the Gulfport Bank in making a decision about the loan, compute the following ratios for both this year and last year (Use 365 days a year. Round your intermediate calculations to 1 decimal place. Round Debt-to-equity ratio to 3 decimal places and other answers to 2 decimal places.) a. The amount of working capital. b. The current ratio. C. The acid-test (quick) ratio. d. The average age of receivables (the accounts receivable at the beginning of last year totalled $174,000). e. The inventory turnover in days (the inventory at the beginning of last year totalled $348,000). f. The debt-to-equity ratio. g. The times interest earned. This Year Last Year to 1 Working capital Current ratio Acid-test ratio Average age of receivables Inventory turnover in days Debt-to-equity ratio Times interest earned to 1 to 1 days days to 1 to 1 days days to 1 times times 2. For both this year and last year: (a) Present the balance sheet in common-size format. (Leave no cells blank - be certain to enter "0" wherever required. Round your answers to 1 decimal place.) L ast Year SABIN ELECTRONICS Common-Size Balance Sheets This Year Current assets: Cash Marketable securities Accounts receivable, net Inventory Prepaid expenses Total current assets Plant and equipment, net Total assets Current liabilities % Bonds payable, 12% Total liabilities Shareholders' equity: Preferred shares, no par, $6 Common shares, no par Retained earnings Total shareholders' equity Total liabilities and equity % % % (b) Present the income statement in common-size format down through net income. (Input all values as positive values. Round your answers to 1 decimal place.) Last Year SABIN ELECTRONICS Common-Size Balance Sheets This Year Sales Less cost of goods sold Gross margin Less operating expenses Net operating income Less interest expense Net income before taxes Less income taxes Net income %