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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	$	320,000	$	420,000
Marketable securities		0		100,000
Accounts receivable, net		900,000		600,000
Inventory		1,300,000		800,000
Prepaid expenses		80,000		60,000
Total current assets		2,600,000		1,980,000
Plant and equipment, net		3,100,000		2,980,000
Total assets	$	5,700,000	$	4,960,000
Liabilities and Stockholders' Equity
Liabilities:
Current liabilities	$	1,300,000	$	920,000
Bonds payable, 10%		1,200,000		1,000,000
Total liabilities		2,500,000		1,920,000
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		600,000		440,000
Total stockholders' equity		3,200,000		3,040,000
Total liabilities and stockholders' equity	$	5,700,000	$	4,960,000

Hedrick Company Comparative Income Statement and Reconciliation
	This Year		Last Year
Sales (all on account)	$	5,250,000	$	4,160,000
Cost of goods sold		4,200,000		3,300,000
Gross margin		1,050,000		860,000
Selling and administrative expenses		530,000		520,000
Net operating income		520,000		340,000
Interest expense		120,000		100,000
Net income before taxes		400,000		240,000
Income taxes (30%)		120,000		72,000
Net income		280,000		168,000
Dividends paid:
Preferred stock		48,000		48,000
Common stock		72,000		36,000
Total dividends paid		120,000		84,000
Net income retained		160,000		84,000
Retained earnings, beginning of year		440,000		356,000
Retained earnings, end of year	$	600,000	$	440,000

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

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