Ride-in-Style, LLC, is a limousine service organized as a partnership by two equal owners, Jim Jones and Rhoda Putnam. They wish to finance two new limousines with a $470,000 purchase price. The partners are able to make a $100,000 down payment to bring the requested loan to $370,000.

Net Worth	294,000
Working Capital	4,000
Loan-to-Value Ratio	74%
Debt Service Coverage Ratio	0.89
Operating Expense Ratio	40%
Debt Yield Ratio	11%
Debt Ratio	43.5%
Operating Cash Flow/Net Sales	7.4%
Free Cash Flow (FCF)	10,000
Comprehensive Free Cash Flow (CFCF)	83.33%

Loan B Details:

Hanson Dynamics, Inc. is a research company organized as a corporation by a single owner, Henry Hanson. The company wishes to finance a new office building with a $500,000 purchase price. The company is able to make a $200,000 down payment to bring the requested loan to $300,000.

Net Worth	570,000
Working Capital	(30,000)
Loan-to-Value Ratio	60%
Debt Service Coverage Ratio	1.14
Operating Expense Ratio	41.67%
Debt Yield Ratio	13.33
Debt Ratio	57.22%
Operating Cash Flow/Net Sales	4.35%
Free Cash Flow (FCF)	8,000
Comprehensive Free Cash Flow (CFCF)	32%

Two loans are presented for underwriting on the last day of the month, loan A and loan B.The underwriter has the following options:

2. Approve both loan A and loan B
4. Approve loan A but not loan B
6. Approve loan B but not loan A
8. Deny both loan A and loan B

Choose your lending strategy (1, 2, 3 or 4) and comment on decision.

Answer rating: 100% (QA)

To determine the lending strategy for loan A and loan B we need to consider the provided financial ratios and information for RideinStyle LLC loan A a... View the full answer