Paul Sabin organized Sabin Electronics 10 years ago in order toproduce and sell several electronic devices on which he had securedpatents. Although the company has been fairly profitable, it is nowexperiencing a severe cash shortage. For this reason, it isrequesting a $500,000 long-term loan from Gulfport State Bank,$100,000 of which will be used to bolster the cash account and$400,000 of which will be used to modernize certain key items ofequipment. The company’s financial statements for the two mostrecent years follow:

  

SABIN ELECTRONICS
Comparative Balance Sheet
	This Year			Last Year
Assets
Current assets:
Cash	$	50,900		$	79,000
Marketable securities		—			9,200
Accounts receivable, net		354,800			158,000
Inventory		710,000			316,000
Prepaid expenses		15,300			11,800
Total current assets		1,131,000			574,000
Plant and equipment, net		1,000,000			726,000
Total assets	$	2,131,000		$	1,300,000
Liabilities and Shareholders’ Equity
Liabilities:
Current liabilities	$	588,000		$	455,500
Bonds payable, 12%		300,000			300,000
Total liabilities		888,000			755,500
Shareholders’ equity:
Preferred shares, no par ($6;14,320 shares issued)		179,000			179,000
Common shares, no par (unlimitedauthorized,        17,000 issued)		170,000			170,000
Retained earnings		894,000			195,500
Total shareholders’ equity		1,243,000			544,500
Total liabilities and shareholders’ equity	$	2,131,000		$	1,300,000

SABIN ELECTRONICS
Comparative Income Statement
	This Year			Last Year
Sales	$	3,700,000		$	3,400,000
Less: Cost of goods sold		2,847,000			2,680,000
Gross margin		853,000			720,000
Less: Operating expenses		481,000			427,000
Net operating income		372,000			293,000
Less: Interest expense		36,000			36,000
Net income before taxes		336,000			257,000
Less: Income taxes (30%)		100,800			77,100
Net income		235,200			179,900
Dividends paid:
Preferred dividends		20,000			20,000
Common dividends		66,600			58,450
Total dividends paid		86,600			78,450
Net income retained		148,600			101,450
Retained earnings, beginning of year		525,400			423,950
Retained earnings, end of year	$	674,000		$	525,400

During the past year, the companyintroduced several new product lines and raised the selling priceson a number of old product lines in order to improve its profitmargin. The company also hired a new sales manager, who hasexpanded sales into several new territories. Sales terms are 2/10,n/30. All sales are on account. Assume that the following ratiosare typical of firms in the electronics industry:

Current ratio		2.5	to 1
Acid-test (quick) ratio		1.3	to 1
Average age of receivables		18	days
Inventory turnover in days		60	days
Debt-to-equity ratio		0.90	to 1
Times interest earned		6.0	times
Return on total assets		13	%
Price–earnings ratio		12

Required:
1.	To assist the Gulfport Bank in making a decision about the loan,compute the following ratios for both this year and last year(Use 365 days a year. Round your intermediate calculationsto 1 decimal place. Round Debt-to-equity ratio to 3 decimal placesand other answers to 2 decimal places.):

a.	The amount of working capital.
b.	The current ratio.
c.	The acid-test (quick) ratio.
d.	The average age of receivables (the accounts receivable at thebeginning of last year totalled $156,000).
e.	The inventory turnover in days (the inventory at the beginningof last year totalled $312,000).
f.	The debt-to-equity ratio.
g.	The times interest earned.

2.	For both this year and last year:

(a)	Present the balance sheet in common-size format. (Leaveno cells blank - be certain to enter "0" wherever required. Roundyour answers to 1 decimal place.)

(b)	Present the income statement in common-size format down throughnet income. (Input all values as positive values. Roundyour answers to 1 decimal place.)