Paula Romanov is the credit manager of Pinnacle Inc. She is considering whether to extend credit to Mak Inc., a new customer. Pinnacle sells most of its goods on credit but is very careful in extending credit to new customers. Tim Mak, the owner of Mak Inc., provided the following documents to Paula to assist her in her evaluation:
1. A detailed analysis of the sales revenue and earnings that Mak Inc. expects to achieve within the next 12 months.
2. Projections of the company’s sales during the next five years.
3. The company’s monthly bank statements for the past three years.
4. A report of the company’s credit history prepared by Mak’s employees.
5. A letter signed by all four company officers indicating that they are prepared to personally guarantee the amount of credit that Pinnacle approves.
6. Brief resumés of the four company officers along with descriptions of the functions they perform in the company.
7. Eight letters of reference from close friends and relatives of the four company officers.
Required:
Analyze each of the items above with respect to the characteristics of relevance (predictive value and confirmatory value) and faithful representation (complete, neutral, and free from material error). Explain whether or not each item possesses these characteristics.