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:

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 26% 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 $61 per share last year to $45 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:

Hedrick Company Comparative Balance Sheet This Year Last Year Assets Current assets: Cash Marketable securities Accounts receivable, net Inventory Prepaid expenses S 314,000 $428,000 105,000 595,000 820,000 51,000 0 906,000 1,490,000 82,000 Total current assets Plant and equipment, net 2,792,000 3,078,600 1,999,000 3,053,500 Total assets $ 5,870,600 5,052,500 Liabilities and Stockholders' Equity Liabilities Current liabilities Bonds payable, 10% $1,240,000 1,170,000 790,000 1,050,000 Total liabilities 2,410,000 1,840,000 Stockholders' equity: Preferred stock, 8%, $30 par value Common stock, $40 par value Retained earnings 600,000 2,000,000 860,600 600,000 2,000,000 612,500 Total stockholders' equity 3,460,600 3,212,500 Total liabilities and stockholders' equity $ 5,870,600 5,052,500