P2-7 (Analyzing financial statements) Ted Tooney has operated a small service company for several years. The following informa¬ tion is from the financial statements prepared by Ted’s accountant. 1997 1996 Balance Sheet Current assets $ 9,000 $ 8,000 Long-term assets 18,000 15,000 Current liabilities 7,000 4,000 Long-term liabilities 9,000 7,000 Contributed capital 9,000 9,000 Retained earnings 2,000 3,000 Income Statement Revenues $92,000 $ 89,000 Expenses 78,000 72,000 Statement of Cash Flows Net cash flow from operating activities $12,000 $ 15,000 Net cash flow from investing activities (8,000) (5,000) Net cash flow from financing activities (5,000) (8,000) Change in cash balance $(1,000) $ 2,000 Beginning cash balance 5,000 3,000 Ending cash balance $ 4,000 $ 5,000 REQUIRED: Assume that you have some capital to invest, and that Ted asked you to consider making an equity investment in his company. Review the financial statements and describe how you would respond to Ted’s request. Support your recommendation with calculations.