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 $610,000 long-term loan from Gulfport State Bank, $155,000 of which will be used to bolster the Cash account and $455,000 of which will be used to modernize equipment. The companys financial statements for the two most recent years follow:

Sabin Electronics
Comparative Balance Sheet
	This Year		Last Year
Assets
Current assets:
Cash	$	114,000	$	260,000
Marketable securities		0		29,000
Accounts receivable, net		620,000		410,000
Inventory		1,055,000		705,000
Prepaid expenses		30,000		33,000
Total current assets		1,819,000		1,437,000
Plant and equipment, net		1,977,800		1,480,000
Total assets	$	3,796,800	$	2,917,000
Liabilities and Stockholders Equity
Liabilities:
Current liabilities	$	855,000	$	410,000
Bonds payable, 12%		800,000		800,000
Total liabilities		1,655,000		1,210,000
Stockholders' equity:
Common stock, $15 par		800,000		800,000
Retained earnings		1,341,800		907,000
Total stockholders equity		2,141,800		1,707,000
Total liabilities and stockholders' equity	$	3,796,800	$	2,917,000

Sabin Electronics
Comparative Income Statement and Reconciliation
	This Year		Last Year
Sales	$	5,550,000	$	4,680,000
Cost of goods sold		3,985,000		3,560,000
Gross margin		1,565,000		1,120,000
Selling and administrative expenses		675,000		570,000
Net operating income		890,000		550,000
Interest expense		96,000		96,000
Net income before taxes		794,000		454,000
Income taxes (30%)		238,200		136,200
Net income		555,800		317,800
Common dividends		121,000		100,000
Net income retained		434,800		217,800
Beginning retained earnings		907,000		689,200
Ending retained earnings	$	1,341,800	$	907,000

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 3/10, n/30. All sales are on account.

Sabin Electronics
Common-Size Income Statements
	This Year		Last Year
Sales		%		%
Cost of goods sold
Gross margin	0.0		0.0
Selling and administrative expenses
Net operating income	0.0		0.0
Interest expense
Net income before taxes	0.0		0.0
Income taxes
Net income	0.0	%	0.0	%