The Bank of the Midwest is a small retail and commercial lender located in a rural, Midwest county. The commercialunderwriter at the Bank of the Midwest is presented with a lending situation. The underwriter has a monthly loanapproval maximum of $7 million. As of the last day of the month, $6.3 million of loans have been approved and funded(only $700,000 more is allowed according to the banks lending policy). Two loans are presented for underwriting on thelast day of the month, loan A and loan B. The underwriter has the following options:1. Approve both loan A and loan B2. Approve loan A but not loan B3. Approve loan B but not loan A4. Deny both loan A and loan B.The Bank of the Midwest uses a underwriting scorecard system that requires the calculation of the various ratios andvaluations discussed in this course. Complete the scorecard for each loan INCLUDING COMMENTS. Scores are usedto compare loans the higher the score, the greater the chance of approval. Choose your lending strategy (1, 2, 3 or 4)and comment on your decision in at least 2-3 paragraphs.Loan A Details:Ride-in-Style, LLC, is a limousine service organized as a partnership by two equal owners, Jim Jones and Rhoda Putnam.They wish to finance two new limousines with a $470,000 purchase price. The partners are able to make a $100,000down payment to bring the requested loan to $370,000. The following information was requested and submitted with theloan application:BALANCE SHEETCash $ 8,000 Current liabilities $ 5,000Accounts receivable 1,000 Long-term liabilities 175,000Limousines 260,000 Partners Equity 270,000Office Building 205,000 Retained earnings 24,000Total assets $ 474,000 Total liabilities and equity $ 474,000INCOME STATEMENTNet Sales $ 162,000Less: Cost of Sales (74,000)Gross Profit $ 88,000Less: Operating Expenses (91,000)Net Loss (Operating Loss) $ (3,000)STATEMENT OF CASH FLOWNet Loss $ (3,000)Add: Depreciation 25,000Change in Current Assets and Liab (10,000)Net Cash Provided by Operating Activities $12,000Net Cash Provided by Investing Activities (8,000)Net Cash Provided by Financing Activites (3,000)Net Increase (Decrease) in Cash $ 1,000The limousines are appraised at $500,000. Net operating income has averaged $40,000 for the last 5 years prior to thisyears net loss. The annual debt service is estimated to be $45,000 per year. Gross income for the property is anticipatedto be approximately $250,000 annually, and annual operating expenses are verified to be $100,000. The partnerscombined personal financial information shows that they earn approximately $20,000 per month, and currently have thefollowing debts - $6,000 in combined mortgages, $1,200 in combined car payments, combined credit card minimumpayments of $900, and $600 in other relevant debt. Capital expenditures for operating activities were $2.000 and nodividends.Loan A ScorecardLoan Type: Metric CalculationIndustryStandard (ifapplicable)Score (1-5);1 = poor2 = marginal3 = adequate4 = good5 = excellent CommentsNet WorthWorking CapitalLoan-to-ValueRatioDebt ServiceCoverage RatioOperating ExpenseRatioDebt Yield RatioDebt RatioOperating CashFlow/Net SalesFree Cash Flow(FCF)ComprehensiveFree Cash Flow(CFCF)TOTAL SCORELoan Approval (Y/N)_______________________Loan B Details: Hanson Dynamics, Inc. is a research company organized as a corporation by a single owner, Henry Hanson. Thecompany wishes to finance a new office building with a $500,000 purchase price. The company is able to make a$200,000 down payment to bring the requested loan to $300,000. The following information was requested and submittedwith the loan application:BALANCE SHEETCash $ 150,000 Current liabilities $ 225,000Accounts receivable 45,000 Long-term liabilities 500,000Equipment 600,000 Common Stock 270,000Building 500,000 Retained earnings 300,000Total assets $ 1,295,000 Total liabilities and equity $ 1,295,000INCOME STATEMENTNet Sales $ 575,000Less: Cost of Sales (274,000)Gross Profit $ 301,000Less: Operating Expenses (250,000)Net Income (Operating Income) $ 51,000STATEMENT OF CASH FLOWNet Income $ 51,000Add: Depreciation 74,000Change in Current Assets and Liab (100,000)Net Cash Provided by Operating Activities $ 25,000Net Cash Provided by Investing Activities (38,000)Net Cash Provided by Financing Activites (52,000)Net Increase (Decrease) in Cash $ (65,000)The office building is appraised at $475,000. Net operating income has averaged $40,000 for the last 5 years prior. Theannual debt service is estimated to be $35,000 per year. Gross income for the property is anticipated to be approximately$360,000 annually, and annual operating expenses are verified to be $150,000. Henrys personal financial informationshows that he earns approximately $18,000 per month, and currently has the following debts - $5,000 in mortgages,$1,000 in car payments, combined credit card minimum payments of $700, and $3,600 in other relevant debt. Capitalexpenditures for operating activities were $9.000 and dividends were $8,000.Loan B Scorecard Loan Type:Metric CalculationIndustryStandard (ifapplicable)Score (1-5);1 = poor2 = marginal3 = adequate4 = good5 = excellent CommentsNet WorthWorking CapitalLoan-to-ValueRatioDebt ServiceCoverage RatioOperating ExpenseRatioDebt Yield RatioDebt RatioOperating CashFlow/Net SalesFree Cash Flow(FCF)ComprehensiveFree Cash Flow(CFCF)TOTAL SCORELoan Approval (Y/N)____________________Lending Decision (1, 2, 3 or 4)__________Explanation (2-3 paragraphs)