Paul Sabin organized Sabin Electronics 10 years ago 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 $600,000 long-term loan from Gulfport State Bank, $150,000 of which will be used to bolster the Cash account and $450,000 of which will be used to modernize equipment. The company's financial statements for the two most recent years follow: Sabin Electronics Comparative Balance Sheet This Year Last Year Assets Current assets: Cash Marketable securities Accounts receivable, net Inventory Prepaid expenses Total current assets Plant and equipment, net Total assets Liabilities and Stockholders Equity Liabilities: Current liabilities Bonds payable, 12% Total liabilities Stockholders' equity: Common stock, $15 par Retained earnings Total stockholders' equity Total liabilities and stockholders' equity $ 110,000 $ 250,000 0 28,000 607,000 1,045,000 30,000 1,792,000 1,946,400 $ 3,738,400 $ 850,000 750,000 1,600,000 790,000 1,348,400 2,138,400 $ 3,738,400 400,000 695,000 32,000 1,405,000 1,470,000 $ 2,875,000 $ 400,000 750,000 1,150,000 790,000 935,000 1,725,000 $ 2,875,000 Sales Sabin Electronics Comparative Income Statement and Reconciliation Cost of goods sold This Year $ 5,500,000 3,975,000 1,525,000 673,000 Last Year $ 4,650,000 3,550,000 1,100,000 568,000 Gross margin Selling and administrative expenses Net operating income Interest expense Net income before taxes Income taxes (30%) Net income Common dividends Net income retained Beginning retained earnings Ending retained earnings 852,000 532,000 90,000 90,000 762,000 442,000 228,600 132,600 533,400 309,400 120,000 99,000 413,400 210,400 935,000 724,600 $ 1,348,400 $ 935,000 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.