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	$	413,000
Marketable securities		0		109,000
Accounts receivable, net		905,000		599,000
Inventory		1,440,000		780,000
Prepaid expenses		86,000		64,000
Total current assets		2,741,000		1,965,000
Plant and equipment, net		3,471,100		3,096,300
Total assets	$	6,212,100	$	5,061,300
Liabilities and Stockholders' Equity
Liabilities:
Current liabilities	$	1,350,000	$	840,000
Bonds payable, 10%		1,260,000		1,010,000
Total liabilities		2,610,000		1,850,000
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		1,002,100		611,300
Total stockholders' equity		3,602,100		3,211,300
Total liabilities and stockholders' equity	$	6,212,100	$	5,061,300

Hedrick Company Comparative Income Statement and Reconciliation
	This Year		Last Year
Sales (all on account)	$	5,440,000	$	4,290,000
Cost of goods sold		4,070,000		3,200,000
Gross margin		1,370,000		1,090,000
Selling and administrative expenses		520,000		510,000
Net operating income		850,000		580,000
Interest expense		126,000		101,000
Net income before taxes		724,000		479,000
Income taxes (30%)		217,200		143,700
Net income		506,800		335,300
Dividends paid:
Preferred stock		48,000		48,000
Common stock		68,000		34,000
Total dividends paid		116,000		82,000
Net income retained		390,800		253,300
Retained earnings, beginning of year		611,300		358,000
Retained earnings, end of year	$	1,002,100	$	611,300

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