The most noticeable probably being the growth in sales from 2002 to 2003. Sales increased by 23.5% after the expansion of the store. This is a very promising number when comparing it to previous years sales increases of less than 10%. Another positive trend is the increase in net earnings. In the last 4 years net earnings has almost doubled. Gross profit is also on the incline. These are all signs of increasing profitability.
History – 23.5% over the last year
Management Estimate – 10% over each of the next two years
Economy – No indication, but most likely improving
[the following calculations are approximations and not 100% accurate] From 2002 to 2003 when the increase of sales was 23.5% the increase in gross profit was about 30%. If this rate is applied to the projected 10% sales growth of 2004 the gross profit growth should be somewhere around 15%. An approximate $25,000 increase in gross profit would occur in 2004. Also, if Mackay were to receive these loans his total annual interest payout would be about $10,000 less. Providing that the main operating expenses remain the same, this would be a $35,000 increase to net earnings in 2004. This number would increase even more in 2005. With this large increase in net earnings Mackay should have no problem putting money towards paying off his bank loans.
1) Deny both loans completely
Pros: If the