The Raattama Corporation had sales of $3.5 million last year, and it earned a 5 percent return, after taxes, on sales. Recently, the company has fallen behind in its accounts payable. Although its terms of purchase are net 30 days, its accounts payable represent 60 days' purchases. The company's treasurer is seeking to increase bank borrowings in order to become current in meeting its trade obligations (that is, to have 30 days' payables outstanding). The company's balance sheet is as follows (thousands of dollars):

a. How much bank financing is needed to eliminate the past-due accounts payable?

b. Would you as a bank loan officer make the loan? Why or why not?

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Cash Accounts receivable $ 100 Accounts payable Bank loans Accruals Current liabilities Mortgage on real estate Common stock, $0.10 par Retained carnings Total liabilitics and equity $ 600 700 300 200 Inventory Current assets Land and buildings Equipment 1,400 $1,800 $1,500 600 700 600 300 500 Total assets $3,000 $3,000