The 2014 financial statements for Royale and Cavalier companies are summarized below.

These two companies are in the same business and the same province but in different cities. One-half of Royale's sales and one-quarter of Cavalier's sales are on credit. Each company has been in operation for about 10 years. Both companies received an unqualified audit opinion on the financial statements. Royale Company wants to borrow $75,000 cash, and Cavalier Company is asking for $30,000. The loans will be for a two-year period. Both companies estimate bad debts based on an aging analysis, but Cavalier has estimated slightly higher uncollectable rates than Royale. Neither company issued shares in 2014.
Required
1. Calculate the ratios in Exhibit 13.5 for which sufficient information is available. Round all calculations to two decimal places.
2. Assume that you work in the loan department of a local bank. You have been asked to analyze the situation and recommend which loan is preferable. Based on the data given, your analysis prepared in requirement 1, and any other information (e.g., accounting policies and decisions), give your choice and the supporting explanation.

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Cavalier Company Royale Company Balance Sheet Cash $ 25,000 $ 45,000 55.000 110,000 550,000 Accounts Receivable, Net Inventory Property and Equipment, Net 5,000 25,000 160,000 Other Assets 140,000 57,000 $880,000 $292,000 Total Assets $ 15,000 55,000 210,000 4,000 8,000 $120,000 Current Liabilities Long-Term Debt Contributed Copital (24,000 shares; 10,500 shares) Contributed Surplus 190,000 480,000 50,000 40,000 $880,000 Retained Earnings Total Liabilities and Shareholders' Equity $292,000 Income Statement Sales Revenue $800,000 (480,000) $280,000 Cost of Goods Sold (150,000) Expenses (including interest and income tax) (240,000) $ 80,000 (95,000) $ 35,000 Net Income Selected Data from 2013 Statements $ 47,000 $ 11,000 Accounts Receivable, Net Long-Term Debt Property and Equipment, Net 190,000 550,000 95,000 55,000 160,000 38,000 Inventory Total Shareholders' Equity 570,000 202,000 Other Data $ 11.00 Per share price at end of 2014 $ 14.00