You have just been hired as a loan officer for Washington Mutual Savings. Selig Equipment and Mountain Bike Inc. have both applied for $125.000 nine-month loans to acquire additional plant equipment. Neither company offered any security for the bans. It is the strict policy of the bank to have only $1350.000 out-standing in unsecured loans at any point in time. Because the bank currently has $1210.000 in unsecured loans outstanding. it will be unable to grant loans to both companies. The bank president has given you the following selected information from the companies' loan applications.

REQUIRED:

Assume that all account balances on the balance sheet are representative of the entire year. Based on this limited information, which company would you recommend to the bank president as the better risk for an unsecured loan? Support your answer with any relevant analysis.

Watson Metal Products is planning to expand its operations to France in response to increased demand from the French for quality metal products to use in production processes. Ben Watson, president of Watson Metal Products, and his consultants have estimated that the expansion will require an investment of $5 million. They have also estimated that this expansion will cause net income before interest expense to increase by $1,500,000. The company is considering financing the expansion through one of the following alternatives.

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Selig Equipment $ 15,000 Mountain Bike Inc. $ 160,000 Cash Accounts receivable 215,000 470,000 Inventory 305,000 195,000 Prepaid expenses 180,000 10,000 $ 715,000 $ 835,000 Total current assets Noncurrent assets 1,455,000 1,875,000 $2,710,000 Total assets $2,170,000 $ 285,000 $ 325,000 Current liabilities Long-term liabilities 950,000 875,000 910,000 Contributed capital 790,000 Retained earnings 145,000 600,000 $2,710,000 Total liabilities and shareholders' equity $2,170,000