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

2.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 CompanyComparative Balance SheetThis YearLast Year Assets Current assets: Cash$316,000$428,000 Marketable securities0107,000 Accounts receivable, net902,000606,000 Inventory1,370,000700,000 Prepaid expenses77,00054,000 Total current assets2,665,0001,895,000 Plant and equipment, net3,227,5003,199,300 Total assets$5,892,500$5,094,300 Liabilities and Stockholders’ Equity Liabilities: Current liabilities$1,310,000$900,000 Bonds payable, 10%1,140,0001,010,000 Total liabilities2,450,0001,910,000 Stockholders’ equity: Preferred stock, 8%, $30 par value600,000600,000 Common stock, $40 par value2,000,0002,000,000 Retained earnings842,500584,300 Total stockholders’ equity3,442,5003,184,300 Total liabilities and stockholders’ equity$5,892,500$5,094,300 Hedrick CompanyComparative Income Statement and Reconciliation This Year Last Year Sales (all on account)$5,360,000$4,260,000 Cost of goods sold4,170,0003,190,000 Gross margin1,190,0001,070,000 Selling and administrative expenses510,000510,000 Net operating income680,000560,000 Interest expense114,000101,000 Net income before taxes566,000459,000 Income taxes (30%)169,800137,700 Net income396,200321,300 Dividends paid: Preferred stock48,00048,000 Common stock90,00045,000 Total dividends paid138,00093,000 Net income retained258,200228,300 Retained earnings, beginning of year584,300356,000 Retained earnings, end of year$842,500$584,300 Marva Rossen, who just two years ago was appointed president of Hedrick Company, admits that the company has been Ac€A?inconsistentAc€?? in its performance over the past several years. But Rossen argues that the company has its costs under control and is now experiencing strong sales growth, as evidenced by the more than 25% increase in sales over the last year. Rossen also argues that investors have recognized the improving situation at Hedrick Company, as shown by the jump in the price of its common stock from $32 per share last year to $48 per share this year. Rossen believes that with strong leadership and with the modernized equipment that the $1,000,000 loan will enable the company to buy, profits will be even stronger in the future. Anxious to impress your supervisor, you decide to generate all the information you can about the company. You determine that the following ratios are typical of companies in HedrickAc€?cs industry: Current ratio2.3 Acid-test ratio1.2 Average collection period31days Average sale period60days Return on assets9.5% Debt-to-equity ratio0.65 Times interest earned5.7 Price-earnings ratio10Required:1.You decide first to assess the rate of return that the company is generating. Compute the following for both this year and last year:a.The return on total assets. (Total assets at the beginning of last year were $4,400,000.) (Round your answers to 1 decimal place.) This year Last year Return on total assets%%b.The return on common stockholdersAc€?c equity. (Stockholders’ equity at the beginning of last year totaled $4,772,189. There has been no change in preferred or common stock over the last two years.)(Round your intermediate calculations to whole numbers and final answer to 1 decimal place) This year Last year Return on common stockholders’ equity%%c.Is the companyAc€?cs financial leverage positive or negative? This year(Click to select)PositiveNegative Last year(Click to select)NegativePositive 2.You decide next to assess the well-being of the common stockholders. For both this year and last year, compute:a.The earnings per share. (Round your answers to 2 decimal places.) This year Last year Earnings per share$ $ b.The dividend yield ratio for common stock. (Round your intermediate calculations to 2 decimal places and final answers to 1 decimal place.) This year Last year Dividend yield ratio% %c.The dividend payout ratio for common stock. (Round your intermediate calculations to 2 decimal places and final answers to 1 decimal place.) This year Last year Dividend payout ratio%%d.The price-earnings ratio. (Round your intermediate calculations to 2 decimal places and final answers to 1 decimal place.)This yearLast year Price-earnings ratiotimes times e.The book value per share of common stock. (Round your answers to 2 decimal places.) This year Last year Book value per share$ $ f.The gross margin percentage. (Round your answers to 1 decimal place.) This year Last year Gross margin percentage%% 3.You decide, finally, to assess creditor ratios to determine both short-term and long-term debt paying ability. For both this year and last year, compute:a.Working capital. This year Last year Working capital$ $ b.The current ratio. (Round your answers to 2 decimal places.) This year Last year Current ratio c.The acid-test ratio. (Round your answers to 2 decimal places.) This year Last year Acid-test ratio d.The average collection period. (The accounts receivable at the beginning of last year totaled $529,000.) (Use 365 days in a year. Round your intermediate calculations to 2 decimal places and final answers to the nearest whole number.)This yearLast year Average collection perioddaysdays e.The average sale period. (The inventory at the beginning of last year totaled $690,000.) (Use 365 days in a year.Round your intermediate calculations to 2 decimal places and final answers to the nearest whole number.)This yearLast year Average sale perioddaysdays f.The debt-to-equity ratio. (Round your answers to 2 decimal places.) This year Last year Debt-to-equity ratio g.The times interest earned. (Round your answers to 1 decimal place.) This year Last year Times interest earned