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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	$	328,000	$	427,000
Marketable securities		0		99,000
Accounts receivable, net		900,000		600,000
Inventory		1,390,000		800,000
Prepaid expenses		85,000		57,000
Total current assets		2,703,000		1,983,000
Plant and equipment, net		3,313,100		3,289,100
Total assets	$	6,016,100	$	5,272,100
Liabilities and Stockholders Equity
Liabilities:
Current liabilities	$	1,220,000	$	900,000
Bonds payable, 10%		1,300,000		1,170,000
Total liabilities		2,520,000		2,070,000
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		896,100		602,100
Total stockholders equity		3,496,100		3,202,100
Total liabilities and stockholders equity	$	6,016,100	$	5,272,100

Hedrick Company
Comparative Income Statement and Reconciliation
	This Year		Last Year
Sales (all on account)	$	5,250,000	$	4,330,000
Cost of goods sold		4,010,000		3,240,000
Gross margin		1,240,000		1,090,000
Selling and administrative expenses		510,000		510,000
Net operating income		730,000		580,000
Interest expense		130,000		117,000
Net income before taxes		600,000		463,000
Income taxes (30%)		180,000		138,900
Net income		420,000		324,100
Dividends paid:
Preferred stock		48,000		48,000
Common stock		78,000		39,000
Total dividends paid		126,000		87,000
Net income retained		294,000		237,100
Retained earnings, beginning of year		602,100		365,000
Retained earnings, end of year	$	896,100	$	602,100

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

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