You have just been given a job as a loan officer. It is your job to evaluate business loan applications. Your boss would like you to prepare a new set of guidelines to be used by the bank to evaluate loan requests, leading to the approval or denial decision. Prepare a loan application packet and include the specific quantitative and qualitative information you would want an applicant for a loan to provide to you. Explain in a brief written report, and show how you would use the requested information to decide whether a loan should be approved. Answer the following questions: 1. Calculate the profitability ratios. Comment on net profit margin and return on assets ratios if the industry average for these two ratios are 5 percent and 14 percent, respectively. 2. Calculate the liquidity ratios. Comment on the company's ability to pay off short-term debts. 3. Calculate the debt ratios. Would a banker agree to extend a loan? Explain. 4. Calculate the asset activity ratios. Comment on the firm's asset utilization. 5. Calculate the economic value added (EVA) and the market value added (MVA) for Tentacle Acres, assuming that the firm's income tax rate is 35 percent, the weighted average rate of return expected by the suppliers of the firm's capital is 10 percent, and the market price of the firm's stock is $15. There are 5 million shares outstanding. Comment on your results. What do the EVA and MVA values that you calculated indicate? The consolidated income statement and consolidated balance sheet of Tentacle Acres Company and Subsidiaries are as follows: Income Statement (000 dollars) Sales $94,001 Cost of Goods Sold $46,623 Gross Profit $47,378 Selling and Administrative Expenses $28,685 Depreciation and R&D Expense (both tax deductible) $5,752 EBIT $12,941 Interest Expense $48 Interest Income $427 Earnings Before Before Taxes (EBT) $13,320 Income Tax ( $4,700 Net Income (NI) $8,620 Earnings per Share $2 Balance Sheet (000 dollars) Assets: Cash $5,534 Marketable Securities $952 Accounts Receivable (gross) $14,956 Less: Allowance for Bad Debts $211 Accounts Receivable (net) $14,745 Inventory $10,733 Prepaid Expenses $3,234 Plant and Equipment (gross) $57,340 $29,080 Less: Accumulated Depreciation Plant and Equipment (net) $28,260 Land $1,010 Long-Term Investments $2,503 Total Assets $66,971 Liabilities: Accounts Payable $3,253 Notes Payable Accrued Expenses $6,821 Bonds Payable $2,389 Stockholders' Equity: Common Stock $8,549 Retained Earnings $45,959 Total Liabilities and Equity $66,971 You have just been given a job as a loan officer. It is your job to evaluate business loan applications. Your boss would like you to prepare a new set of guidelines to be used by the bank to evaluate loan requests, leading to the approval or denial decision. Prepare a loan application packet and include the specific quantitative and qualitative information you would want an applicant for a loan to provide to you. Explain in a brief written report, and show how you would use the requested information to decide whether a loan should be approved. Answer the following questions: 1. Calculate the profitability ratios. Comment on net profit margin and return on assets ratios if the industry average for these two ratios are 5 percent and 14 percent, respectively. 2. Calculate the liquidity ratios. Comment on the company's ability to pay off short-term debts. 3. Calculate the debt ratios. Would a banker agree to extend a loan? Explain. 4. Calculate the asset activity ratios. Comment on the firm's asset utilization. 5. Calculate the economic value added (EVA) and the market value added (MVA) for Tentacle Acres, assuming that the firm's income tax rate is 35 percent, the weighted average rate of return expected by the suppliers of the firm's capital is 10 percent, and the market price of the firm's stock is $15. There are 5 million shares outstanding. Comment on your results. What do the EVA and MVA values that you calculated indicate? The consolidated income statement and consolidated balance sheet of Tentacle Acres Company and Subsidiaries are as follows: Income Statement (000 dollars) Sales $94,001 Cost of Goods Sold $46,623 Gross Profit $47,378 Selling and Administrative Expenses $28,685 Depreciation and R&D Expense (both tax deductible) $5,752 EBIT $12,941 Interest Expense $48 Interest Income $427 Earnings Before Before Taxes (EBT) $13,320 Income Tax ( $4,700 Net Income (NI) $8,620 Earnings per Share $2 Balance Sheet (000 dollars) Assets: Cash $5,534 Marketable Securities $952 Accounts Receivable (gross) $14,956 Less: Allowance for Bad Debts $211 Accounts Receivable (net) $14,745 Inventory $10,733 Prepaid Expenses $3,234 Plant and Equipment (gross) $57,340 $29,080 Less: Accumulated Depreciation Plant and Equipment (net) $28,260 Land $1,010 Long-Term Investments $2,503 Total Assets $66,971 Liabilities: Accounts Payable $3,253 Notes Payable Accrued Expenses $6,821 Bonds Payable $2,389 Stockholders' Equity: Common Stock $8,549 Retained Earnings $45,959 Total Liabilities and Equity $66,971