Tangelo Corporation Comparative Balance Sheets
	Year Ended December 31, Year 5	Year Ended December 31, Year 4
Assets
Cash	$145,000	$ 45,000
Accounts receivable	300,000	441,000
Prepaid expenses	100,000	114,000
Inventory	235,000	324,675
Total assets	$780,000	$924,675
Liabilities
Accounts payable	$445,000	$750,000
Noncurrent notes payable	85,000	40,000
Owners equity	250,000	134,675
Total liabilities and equity	$780,000	$924,675
Statement of Equity
Beginning balance	$134,675
Net income	115,325
Ending balance	$250,000

o: Brandi Book, Accounting manager

From: Bill Banker, Finance manager

Subject: Loan analysis

Date: December 30, Year 5

Hey Brandi,

As you know, we need to get our quick ratio above 1.0000 by the end of the year. I am attaching the balance sheets below for your review. Our debt ratio has dropped from 85% to 68% because we reduced our accounts receivable and accounts payable as much as we can and increased the cash balance significantly. We need to keep the debt ratio below 70%. I am unsure which current assets are considered quick assets.

The board of directors has decided to take out a new short-term loan instead of a long-term loan to improve our quick ratio. We have proposals from Forest Bank, Sandy Dunes Bank, and Mud Flats Bank. The loan is to be paid off by the end of the next year, and cash is to be increased to have a cushion in case the economy goes into recession.

I have attached the proposed loan agreements from each bank for your review. Please calculate the effective interest rate and draft a projected balance sheet for each agreement so we can determine the effect on our quick and debt ratios. I am not sure how the accounting rules apply to these situations and you understand this stuff better than I do. I have done my evaluation, but I would feel better if you would do yours independently and then we can compare our results.

Dr. Marco, CEO, wants to meet with us tomorrow at lunch to discuss these loans. We dont have much time to get this done, especially with the holidays upon us.

Regards,

Bill Banker

. Tangelo Corporation (Borrower) and Mud Flats Bank (Lender) are bound in the sum of two hundred and forty-five thousand dollars ($245,000.00 Principal Amount), for the payment of which Borrower binds itself and its successors, assigns, and legal representatives.

B. Borrower and Lender have entered into a written contract for loan (hereinafter Contract) which was executed on __________, and is incorporated by reference into this Contract.

1. DURATION. This obligation shall run continuously and shall remain in full force and effect until and unless the loan is terminated and canceled as provided herein or as otherwise provided by law.

2. CONDITION OF OBLIGATION. Borrower owes 4.31% discount interest on Principal Amount. Proceeds of the loan shall be two hundred and fifty-six thousand and thirty-five dollars ($256,035.00). The Principal Amount and interest of $11,035.00 are due at the end of 12 months from the date of execution of the Contract.

3. NOTICE. No liability shall attach to Lender hereunder unless, upon discovery of any fact or circumstance indicating a possible claim hereunder, immediate written notice thereof containing all details then known is given to Lender at its principal office at 101 Mud Flats Boulevard, Fayetteville, AR 72701.

4. DEFAULT. If default be made in the payment of any of said sums or interest or in the performance of any agreements contained herein, then, at the option of the Lender of the same, the principal sum then remaining unpaid with accrued interest shall immediately become due and collectible without notice, time being of the essence of this Contract, and said principal sum and said accrued interest shall both bear interest at the highest interest rate then allowed by law, from such time of default until paid.

5. SEVERABILITY. If any of the provisions of this Contract are held to be illegal or unenforceable by a court of competent jurisdiction, all other provisions shall remain effective.

6. BINDING EFFECT. This Contract shall be binding and inure on Borrower and its successors, assigns, and legal representatives.

IN WITNESS WHEREOF, Borrower and Lender have executed this Contract on December 31, Year 5.

Lender		Borrower
Mud Flats Bank		Tangelo Corporation

Tangelo Corporation (Borrower) and Forest Bank (Lender) are bound in the sum of two hundred and forty-five thousand dollars ($245,000.00 Principal Amount), for the payment of which Borrower binds itself and its successors, assigns, and legal representatives.

B. Borrower and Lender have entered into a written contract for loan (hereinafter Contract) which was executed on __________, and is incorporated by reference into this Contract.

1. DURATION. This obligation shall run continuously and shall remain in full force and effect until and unless the loan is terminated and canceled as provided herein or as otherwise provided by law.

2. CONDITION OF OBLIGATION. Borrower owes 4.5% interest on Principal Amount. The Principal Amount and interest is due at the end of 12 months from the date of execution of the Contract.

3. NOTICE. No liability shall attach to Lender hereunder unless, upon discovery of any fact or circumstance indicating a possible claim hereunder, immediate written notice thereof containing all details then known is given to Lender at its principal office at 153 Forest Boulevard, Tuscaloosa, AL 35487.

4. DEFAULT. If default be made in the payment of any of said sums or interest or in the performance of any agreements contained herein, then, at the option of Lender of the same, the principal sum then remaining unpaid with accrued interest shall immediately become due and collectible without notice, time being of the essence of this Contract, and said principal sum and said accrued interest shall both bear interest at the highest interest rate then allowed by law, from such time of default until paid.

5. SEVERABILITY. If any of the provisions of this Contract are held to be illegal or unenforceable by a court of competent jurisdiction, all other provisions shall remain effective.

6. BINDING EFFECT. This Contract shall be binding and inure on Borrower and its successors, assigns, and legal representatives.

IN WITNESS WHEREOF, Borrower and Lender have executed this Contract on December 31, Year 5.

Lender		Borrower
Forest Bank		Tangelo Corporation

Tangelo Corporation (Borrower) and Sandy Dunes Bank (Lender) are bound in the sum of two hundred and seventy thousand dollars ($270,000.00 Principal Amount), for the payment of which Borrower binds itself and its successors, assigns, and legal representatives.

B. Borrower will maintain a checking balance at Lender in the amount of $25,000 (twenty-five thousand dollars) for the duration of Contract until Contract is terminated and canceled.

C. Borrower and Lender have entered into a written contract for loan (hereinafter Contract) which was executed on __________, and is incorporated by reference into this Contract.

1. DURATION. This obligation shall run continuously and shall remain in full force and effect until and unless the loan is terminated and canceled as provided herein or as otherwise provided by law.

2. CONDITION OF OBLIGATION. Borrower owes 4.08% interest on Principal Amount. The Principal Amount and interest are due at the end of 12 months from the date of execution of the Contract.

3. NOTICE. No liability shall attach to Lender hereunder unless, upon discovery of any fact or circumstance indicating a possible claim hereunder, immediate written notice thereof containing all details then known is given to Lender at its principal office at 837 Sandy Dunes Boulevard, Baton Rouge, LA 70803.

4. DEFAULT. If default be made in the payment of any of said sums or interest or in the performance of any agreements contained herein, then, at the option of the Lender of the same, the principal sum then remaining unpaid with accrued interest shall immediately become due and collectible without notice, time being of the essence of this Contract, and said principal sum and said accrued interest shall both bear interest at the highest interest rate then allowed by law, from such time of default until paid.

5. SEVERABILITY. If any of the provisions of this Contract are held to be illegal or unenforceable by a court of competent jurisdiction, all other provisions shall remain effective.

6. BINDING EFFECT. This bond shall be binding and inure on Borrower and its successors, assigns, and legal representatives.

IN WITNESS WHEREOF, Borrower and Lender have executed this Contract on December 31, Year 5.

Lender		Borrower
Sandy Dunes Bank		Tangelo Corporation

Accounts receivable turnover

Sales (net)

Average accounts receivable (net)

Asset turnover

Sales (net)

Average total assets

Basic earnings per share

Income available to common shareholders

Weighted-average common shares outstanding

Cash conversion cycle

Days sales in accounts receivable + Days in inventory Days of payables outstanding

Current ratio

Current assets

Current liabilities

Days in inventory

Ending inventory

Cost of goods sold 365

Days of payables outstanding

Ending accounts payable

Cost of goods sold 365

Days sales in accounts receivable

Ending accounts receivable (net)

Net credit sales 365

Debt to equity

Total liabilities

Total equity

Dividend payout

Cash dividends

Net income

Equity multiplier

Total assets

Total equity

Gross margin (gross profit margin)

Sales (net) Cost of goods soldSales (net)

Inventory turnover

Cost of goods sold

Average inventory

Operating cash flow ratio

Cash flow from operations

Ending current liabilities

Price-earnings ratio

Price per share

Basic earnings per share

Profit margin

Net income

Sales (net)

Quick ratio

Cash and cash equivalents + Short-term marketable securities + Receivables (net)

Current liabilities

Return on assets

Net income

Average total assets

Return on equity

Net income

Average total equity

Return on sales

Income before interest income, interest expense, and taxes

Sales (net)

Times interest earned

Income before interest expense and taxes

Interest expense OR

Earnings before interest and taxes

Interest expense

Total debt ratio

Total liabilities

1. What is the effective interest rate for Forest Bank's loan?
2. What is the effective interest rate for Sandy Dunes' Loan?
3. Assume loan interest expense is paid in cash at the beginning of the loan term. What is the effective interest rate for Mud Flats' Loan?
4. Which of the three loans should Tangelo choose?

Total assets