1. The following is an excerpt from the chief executive officers letter to the stock-holders that was included in the annual report of Best Corp.:

It feels good to finish 2019 and be thankful that your company achieved its best year. I am sure that you are puzzled by my statement given the net loss we have reported in the income statement. Let me explain. Although our gross margin has declined from the last years because of competitive pressures, we have set a company record in terms of sales revenue. You know quite well how accounting income can be manipulated. We dont play that game. We let cash flows tell our story. Also, we have efficiently managed our receivables and inventory with a considerable amount of decrease in accounts receivable and inventory accounts, compared with last year. Furthermore, we have taken advantage of all available credit from our suppliers . More importantly, Im sure all of you are very pleased with the dividends that you have received this year. Let me end this letter by proudly inviting you to visit our new office building. Please remember that your top management team did not burden you with one dollar of debt to buy this building.

Required:

Assume that you are a commercial lending officer at Max bank. The outstanding balance of the loan given to Best Corp. is $900,000 on December 31, 2019(maturity of the loan is March, 2022). The CEO of Best Corp. has sent a loan proposal to Max Bank requesting renewal of the loan for one more year and an increase in the credit limit to $1,200,000.

Please write a report to your boss with a specific recommendation on whether to accept or reject the proposal of Best Corporation. Base your recommendation on the information available to you and consider all the claims made by the CEO in the letter to stockholders.