Please note that only the information below are available below in the questionnaire:

The new machinery could also serve as collateral for the new loan. Select the statement most relevant to new machinery as collateral. (Please note: only one of the listed options is be correct.)

a. Machinery normally serve as good collateral.

b. Machinery ownership normally hard to determine.

c. Specialized machinery usually assigned low or zero collateral value.

d. The value of the machinery must be subtracted from the net asset value of the company to obtain the collateral value.

e. None of the options are correct.

READ THE CASE STUDY BELOW AND PLEASE ANSWER THE ABOVE QUESTION.

CASE STUDY:

Mr Roth applies for a medium-term loan (5 years) of $4 000 000 to purchase specialised machinery which would expand the production capacity of his business substantially and $3 000 000 additional overdraft facilities to augment the working capital requirements as a result of the expansion.

The business TTM Projects Pty Ltd specialises in the manufacturing of electrical and electronic components for the automotive industry.

Mr Roth (the only shareholder of the company) offers the following collateral to the bank for the requested facilities:

• Unlimited guarantee/suretyship by himself;
• A second mortgage bond over his residential property for $2 000 000. (The realistic market value of the property is $3 250 000 according to a valuation recently done by the bank. The first bond to the value of $2,500,000 in favour of your bank secures the existing debt pertaining to the residential property.);
• A cession of debtors;
• A cession of his loan accounts in TTM Projects Pty Ltd;
• A mortgage over the machinery to be purchased; and
• A mortgage over inventory.

TTM PROJECTS PTY LTD INCOME STATEMENT FOR THE YEAR ENDED 28 FEBRUARY STATEMENT OF FINACIAL POSITION AT 28 FEBRUARY Note 20XX (S) 20XX-1 (S) Note 20XX (S) 20XX-1 () REVENUE 135,575,750 31,873,620 Ordinary Shares 1,000 1,000 LESS COST OF GOODS SOLD 19,968,630 15,634,660 Retained Income 3,486,358 2,998,053 GROSS PROFIT 15,607,120 16,238,960 Total Shareholder Funds 3,487,358 2,999,053 LESS ADMIN EXPENSES 14,889,570 15,399,470 Loans From Directors 2 3,944,132 5,152,627 NET INCOME before taxation 6 717,550 839,490 Accounts Payable 6,881,690 7,682,870 TAXATION 7 229,245 251,847 Taxation 1,531,620 1,075,830 NET INCOME after taxation 488,305 587,643 Bank Overdraft 5 8,684,970 5,330,570 RETAINED INCOME at start 2,998,053 2,410,410 17,098,280 14,089,270 RETAINED INCOME at end 3,486,358 2,998,053 24,529,770 22.240.950 Machinery, vehicles, office 1&4 1,933,610 1,921,160 assets Inventories 10,841,240 10,066,030 Accounts Receivable 11,374,210 10,155,010 Deposits 74,850 5,000 Cash on Hand 305,860 93,750 24,529,770 22,240,950 3 60,000 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR 5 BANK OVERDRAFT 1 ACCOUNTING POLICIES Bears interest at 17.5 percent per annum and is secured by a personal guarantee of Mr Zotwa, The principal accounting policies adopted by the Company are: as well as a special bond over the inventories of the corporation. 1.1 ACCOUNTING BASIS 6 NET INCOME 20XX($) 20XX - 1($) These Financial Statements have been prepared on the historical cost basis; The net income is stated after: 1.2 NON CURRENT ASSETS Accounting Officers' remuneration 74,010 Assets are depreciated on the reducing balance method at the Depreciation 769,210 341,760 following principal rates; Motor Vehicles 20% Interest: Directors' Loans 538,830 1,365,600 Furniture 10% Interest: Other 1,934,770 1,577,090 Equipment 20% 1.3 REVENUE 7 TAXATION 20XX ($) 20XX - 1($) Revenue represent total amounts invoiced net of returns and discounts. Normal Taxation 229,245 251,847 2 DIRECTORS' LOAN 8 TRANSACTIONS WITH SHAREHOLDERS The loan is unsecured, with no fixed dates for repayment, but bears interest at 16 percent per annum. There were no transactions with shareholders during the year under review. 3 INVENTORIES 9 CONTINGENT LIABILITY Secured to the bank by way of a special bond. Letter of credit for $1,500 000 issued by bank to Croation Supply Company 4 NON CURRENT ASSETS Current Accum. 20XX 20XX-1 Cost Depr. Depr. Net Value Net Value Motor vehicle 604,900 80,430 283,200 321,700 402,130 Machinery 2,417,730 654,440 817,520 1,600,210 1,504,390 Office equipment 48,970 34,340 37,270 11,700 14,640 3,071,600 769,210 1,137,990 1,933,610 1,921,160