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 $ 309,000 $ 427,000 Marketable securities 0 98,000 Accounts receivable, net 905,000 605,000 Inventory 1,370,000 810,000 Prepaid expenses 74,000 55,000 Total current assets 2,658,000 1,995,000 Plant and equipment, net 3,257,200 3,159,600 Total assets $ 5,915,200 $ 5,154,600 Liabilities and Stockholders' Equity Liabilities: Current liabilities $ 1,260,000 $ 890,000 Bonds payable, 10% 1,220,000 1,120,000 Total liabilities 2,480,000 2,010,000 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 835,200 544,600 Total stockholders' equity 3,435,200 3,144,600 Total liabilities and stockholders' equity $ 5,915,200 $ 5,154,600 Hedrick Company Comparative Income Statement and Reconciliation This Year Last Year Sales (all on account) $ 5,330,000 $ 4,220,000 Cost of goods sold 4,120,000 3,220,000 Gross margin 1,210,000 1,000,000 Selling and administrative expenses 510,000 500,000 Net operating income 700,000 500,000 Interest expense 122,000 112,000 Net income before taxes 578,000 388,000 Income taxes (30%) 173,400 116,400 Net income 404,600 271,600 Dividends paid: Preferred stock 48,000 48,000 Common stock 66,000 33,000 Total dividends paid 114,000 81,000 Net income retained 290,600 190,600 Retained earnings, beginning of year 544,600 354,000 Retained earnings, end of year $ 835,200 $ 544,600 Marva Rossen, who just two years ago was appointed president of Hedrick Company, admits that the company has been inconsistent in its performance over the past several years. But Rossen argues that the company has its costs under control and is now experiencing strong sales growth, as evidenced by the more than 25% increase in sales over the last year. Rossen also argues that investors have recognized the improving situation at Hedrick Company, as shown by the jump in the price of its common stock from $30 per share last year to $46 per share this year. Rossen believes that with strong leadership and with the modernized equipment that the $1,000,000 loan will enable the company to buy, profits will be even stronger in the future. Anxious to impress your supervisor, you decide to generate all the information you can about the company. You determine that the following ratios are typical of companies in Hedricks industry: Current ratio 2.3 Acid-test ratio 1.2 Average collection period 31 days Average sale period 60 days Return on assets 9.5 % Debt-to-equity ratio 0.65 Times interest earned 5.7 Price-earnings ratio 10 Required: 1. You decide first to assess the rate of return that the company is generating. Compute the following for both this year and last year: a. The return on total assets. (Total assets at the beginning of last year were $4,360,000.) (Round your answers to 1 decimal place.) This year Last year Return on total assets % % b. The return on common stockholders equity. (Stockholders' equity at the beginning of last year totaled $4,232,196. There has been no change in preferred or common stock over the last two years.)(Round your intermediate calculations to whole numbers and final answer to 1 decimal place) This year Last year Return on common stockholders' equity % % c. Is the companys financial leverage positive or negative? This year Last year 2. You decide next to assess the well-being of the common stockholders. For both this year and last year, compute: a. The earnings per share. (Round your answers to 2 decimal places.) This year Last year Earnings per share $ $ b. The dividend yield ratio for common stock. (Round your intermediate calculations to 2 decimal places and final answers to 1 decimal place.) This year Last year Dividend yield ratio % % c. The dividend payout ratio for common stock. (Round your intermediate calculations to 2 decimal places and final answers to 1 decimal place.) This year Last year Dividend payout ratio % % d. The price-earnings ratio. (Round your intermediate calculations to 2 decimal places and final answers to 1 decimal place.) This year Last year Price-earnings ratio times times e. The book value per share of common stock. (Round your answers to 2 decimal places.) This year Last year Book value per share $ $ f. The gross margin percentage. (Round your answers to 1 decimal place.) This year Last year Gross margin percentage % % 3. You decide, finally, to assess creditor ratios to determine both short-term and long-term debt paying ability. For both this year and last year, compute: a. Working capital. This year Last year Working capital $ $ b. The current ratio. (Round your answers to 2 decimal places.) This year Last year Current ratio c. The acid-test ratio. (Round your answers to 2 decimal places.) This year Last year Acid-test ratio d. The average collection period. (The accounts receivable at the beginning of last year totaled $528,000.) (Use 365 days in a year. Round your intermediate calculations to 2 decimal places and final answers to the nearest whole number.) This year Last year Average collection period days days e. The average sale period. (The inventory at the beginning of last year totaled $680,000.) (Use 365 days in a year.Round your intermediate calculations to 2 decimal places and final answers to the nearest whole number.) This year Last year Average sale period days days f. The debt-to-equity ratio. (Round your answers to 2 decimal places.) This year Last year Debt-to-equity ratio g. The times interest earned. (Round your answers to 1 decimal place.) This year Last year Times interest earned