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Springfield Bank is evaluating Creek Enterprises,




Springfield Bank is evaluating Creek Enterprises, which has requested;a $4,000,000 loan, to assess the firm?s financial leverage and financial risk. On the;basis of the debt ratios for Creek, along with the industry averages (see the top of;the next page) and Creek?s recent financial statements (following), evaluate and;recommend appropriate action on the loan request.;Sales revenue $30,000,000;Less: Cost of goods sold 21,000,000;Gross profits $ 9,000,000;Less: Operating expenses;Selling expense $ 3,000,000;General and administrative expenses 1,800,000;Lease expense 200,000;Depreciation expense 1,000,000;Total operating expense $ 6,000,000;Operating profits $ 3,000,000;Less: Interest expense 1,000,000;Net profits before taxes $ 2,000,000;Less: Taxes (rate 5 40%) 800,000;Net profits after taxes $ 1,200,000;Less: Preferred stock dividends 100,0000;Earnings available for common stockholders $ 1,100,000;Cash $ 1,000,000 Accounts payable $ 8,000,000;Marketable securities 3,000,000 Notes payable 8,000,000;Accounts receivable 12,000,000 Accruals 500,000;Inventories 7,500,000 Total current liabilities $16,500,000;Total current assets $23,500,000 Long-term debt (includes;Land and buildings $11,000,000 financial leases)b $20,000,000;Machinery and equipment 20,500,000 Preferred stock (25,000;Furniture and fixtures 8,000,000 shares, $4 dividend) $ 2,500,000;Gross fixed assets (at cost)a $39,500,000 Common stock (1 million;Less: Accumulated depreciation 13,000,000 shares at $5 par) 5,000,000;Net fixed assets $26,500,000 Paid-in capital in excess of;Total assets $50,000,000 par value 4,000,000;Retained earnings 2,000,000;Total stockholders? equity $13,500,000;Total liabilities and;stockholders? equity $50,000,000;aThe firm has a 4-year financial lease requiring annual beginning-of-year payments of $200,000. Three;years of the lease have yet to run.;bRequired;Industry averages;Debt ratio 0.51;Times interest;earned ratio 7.30;Fixed-payment;coverage ratio 1.85;Additional Requirements;Level of Detail: Show all work


Paper#23381 | Written in 18-Jul-2015

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