You have just been hired as a loan officer at Fairfield State Bank. Your supervisor has given you a file containing a request from Hedrick Company, a manufacturer of auto components, for a $1,000,000 five-year loan. Financial statement data on the company for the last two years are given below:

Hedrick Company Comparative Balance Sheet
	This Year		Last Year
Assets
Current assets:
Cash	$	310,000	$	417,000
Marketable securities		0		95,000
Accounts receivable, net		892,000		596,000
Inventory		1,360,000		770,000
Prepaid expenses		74,000		63,000
Total current assets		2,636,000		1,941,000
Plant and equipment, net		3,096,700		2,963,400
Total assets	$	5,732,700	$	4,904,400
Liabilities and Stockholders' Equity
Liabilities:
Current liabilities	$	1,220,000	$	750,000
Bonds payable, 10%		1,210,000		1,080,000
Total liabilities		2,430,000		1,830,000
Stockholders' equity:
Preferred stock, 8%, $30 par value		600,000		600,000
Common stock, $40 par value		2,000,000		2,000,000
Retained earnings		702,700		474,400
Total stockholders' equity		3,302,700		3,074,400
Total liabilities and stockholders' equity	$	5,732,700	$	4,904,400

Hedrick Company Comparative Income Statement and Reconciliation
	This Year		Last Year
Sales (all on account)	$	5,250,000	$	4,160,000
Cost of goods sold		4,100,000		3,240,000
Gross margin		1,150,000		920,000
Selling and administrative expenses		520,000		510,000
Net operating income		630,000		410,000
Interest expense		121,000		108,000
Net income before taxes		509,000		302,000
Income taxes (30%)		152,700		90,600
Net income		356,300		211,400
Dividends paid:
Preferred stock		48,000		48,000
Common stock		80,000		40,000
Total dividends paid		128,000		88,000
Net income retained		228,300		123,400
Retained earnings, beginning of year		474,400		351,000
Retained earnings, end of year	$	702,700	$	474,400

Marva Rossen, who just two years ago was appointed president of Hedrick Company, admits that the company has been