I only need the 3rd question (a-g) answered. It would be of great help. Thank you

I only need the 3rd question (a-g) answered. It would be of great help. Thank you


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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:
Marva Rossen, who just two years ago was appointed president of Hedrick Company, admits
that the company has been “inconsistent” 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 that investors have
recognized the improving situation at Hedrick Company, as shown by the jump
in the price of its common stock from $20 per share last year to $36 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 Hedrick’s

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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:
The return on total assets. (Total assets at the beginning of last year were $4,320,000.)
The return on common stockholders’ equity. (Stockholders’ equity at the beginning of
last year totaled $3,016,000. There has been no change in preferred or common stock
over the last two years.)
Is the company’s financial leverage positive or negative? Explain.
2. You decide next to assess the well-being of the common stockholders. For both this year and
last year, compute:
The earnings per share.
The dividend yield ratio for common stock.
The dividend payout ratio for common stock.
The price-earnings ratio. How do investors regard Hedrick Company as compared to
other companies in the industry? Explain.
The book value per share of common stock. Does the difference between market value
per share and book value per share suggest that the stock at its current price is a bargain?
The 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:
Working capital.
The current ratio.
The acid-test ratio.
The average collection period. (The accounts receivable at the beginning of last year
totaled $520,000.)
The average sale period. (The inventory at the beginning of last year totaled $640,000.)
The debt-to-equity ratio.
The times interest earned.
4. Make a recommendation to your supervisor as to whether the loan should be approved.

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