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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	$	339,000	$	413,000
Marketable securities		0		94,000
Accounts receivable, net		893,000		604,000
Inventory		1,340,000		880,000
Prepaid expenses		71,000		67,000
Total current assets		2,643,000		2,058,000
Plant and equipment, net		3,335,900		2,823,200
Total assets	$	5,978,900	$	4,881,200
Liabilities and Stockholders' Equity
Liabilities:
Current liabilities	$	1,310,000	$	730,000
Bonds payable, 10%		1,190,000		1,040,000
Total liabilities		2,500,000		1,770,000
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		878,900		511,200
Total stockholders' equity		3,478,900		3,111,200
Total liabilities and stockholders' equity	$	5,978,900	$	4,881,200

Hedrick Company Comparative Income Statement and Reconciliation
	This Year		Last Year
Sales (all on account)	$	5,410,000	$	4,210,000
Cost of goods sold		4,080,000		3,260,000
Gross margin		1,330,000		950,000
Selling and administrative expenses		520,000		500,000
Net operating income		810,000		450,000
Interest expense		119,000		104,000
Net income before taxes		691,000		346,000
Income taxes (30%)		207,300		103,800
Net income		483,700		242,200
Dividends paid:
Preferred stock		48,000		48,000
Common stock		68,000		34,000
Total dividends paid		116,000		82,000
Net income retained		367,700		160,200
Retained earnings, beginning of year		511,200		351,000
Retained earnings, end of year	$	878,900	$	511,200

Marva Rossen, who just two years ago was appointed president of Hedrick Company, admits that the company has been

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