Randall Manufacturing has requested a $$2$ million, four$-$year term loan from Farmers State

Bank. It will use the money to expand its warehouse and to upgrade its assembly line. Randall

supplied the following cash flow forecasts as part of the loan application.

The forecasts assume that the loan is granted at the beginning of $20$X$1$ and that $$2\mathrm{.}59$ million

will be spent that year on the expansion and upgrade. Randall plans to spend $$50,000$ each

year to replace worn$-$out manufacturing equipment and $$100,000$ each year for dividends.

Required:

$1.$ As the bank$$s chief loan officer, what is your opinion about the degree of credit risk associated

with this $$2$ million loan?

$2.$ How can Randall Manufacturing lower its credit risk?