GROUP ASSIGNMENT

FINANCIAL MANAGEMENT

SUBJECT COORDINATOR: MICHAEL LI

INSTANCE COORDINATOR: ANGELA LOU

Nhu Tuong Vy Tu 18209829

Loan Nguyen Thi 18771985
Arnav Rajkhowa 18741337
Abdukarim Raufi 18572085

OCTOBER 17, 2016

1
Contents
SUMMARY ............................................................................................................................... 3
Question 1 .................................................................................................................................. 4
Question 2 .................................................................................................................................. 8
Question 3 .................................................................................................................................. 9
Question 4 ................................................................................................................................ 12
Question 5 ................................................................................................................................ 13
Question 6 ................................................................................................................................ 16
Question 7 ................................................................................................................................ 17
Question 8 ................................................................................................................................ 19
CONCLUSION ........................................................................................................................ 21

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SUMMARY
Industry Summary

The US OEMs experienced a severe slump in 2008 with sales dropping more than 30% and
the industry was running at 55% capacity during the financial crisis. The shift in production
to countries such as China and India, due to the low-cost of labour, increased competition in
the OEM industry as these countries were competing for US market shares. The increase in
the overseas completion coupled with the high cost structures in the US and the effects of the
financial crisis forced numerous U.S. OEM’s into bankruptcy. The industry rebounded since
2010, but due to the slow economic recovery and the high prices of raw materials,
competition was still fierce. In 2013, there were over 5000 automotive parts suppliers in the
U.S. The OEM industry in the U.S represented a highly fragmented market with less than 4%
of the companies having annual sales of more than $100 million. Michigan had the highest
number of OEM’s as it was the home to the big three U.S. automotive companies, General
Motors, Ford and Chrysler.

Company Summary

Jackson Automotive Systems is an Original Equipment Manufacturer located in Michigan,

USA and was founded in 1961. Larry Edwards took over as the president of the company
from his father in the mid-1990s. Larry Edwards successfully lead the company through the
2008-2009 global recession, where similar companies went out of business or faced
bankruptcy. Since small companies like Jackson Automotive Systems relied on sales to local
customers, their location greatly benefitted them. Since 2010 Jackson Automotive Systems
had seen a steady rebuilding of its sales and in 2013 Jackson was on pace to have a year of
capacity sales, for the first time since 2007. Though Jackson was on pace for a year of
capacity sales in 2013, it still had problems to repay its loan on time. The company is seeking
for an extension on its current $5 million loan and an additional $2.4 million to facilitate its
equipment purchase.

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Question 1
Why can’t profitable company like Jackson repay its loan on time?

Though Jackson was on pace for a year of capacity sales in 2013, it still had problems to
repay its loan on time. Hence, it is possible that a company may be fundamentally profitable
but still unable to meet its short-term obligations due to liquidity problems or cash deficiency.
Liquidity is the measure of a company’s ability to meet short-term obligations. Although a
company can have profits on its balance sheet, it may not have enough cash to repay loans on
time due to the cash being used in some other area or some emergency situations. Therefore,
a profitable company like Jackson has problems in repaying its loans on time. Some reasons
for the non-repayment of loans on time by a profitable company like Jackson include:

 Natural and Economic Disasters: The impact of natural disasters is significant not
only to the physical environment, but also to markets and organisations, who at times
of such disasters are rendered helpless. Economic disasters like the financial crisis
impact the liquidity measures of a company tremendously. Reduction in sales,
employment, capacity and increase in costs during economic downturns causes many
cash flow problems hindering the ability of a company to repay its loans.
 Internal Policy Failures: A company’s internal policy and capital budgeting
structure have significant effects on its cash flows. A wrong policy undertaken
without significant considerations can cause disruptions in a company’s cash flows,
resulting in having low levels of cash to repay loans on time. For example, a
company’s credit policy will have a significant impact on cash budgeting. A loose
credit policy may lead to a low liquidity ratio. The fact is that, the sooner the cash is
in hand, the sooner you can pay your own creditors and acquire more inventory.
Ideally, your policy should be viewed as fair rather than too tight or too loose. A fair
policy that fits with industry norms typically leads to the best combination of ongoing
business, cash flow and a low number of collections accounts. About capital
budgeting, a company like Jackson, who are primarily financed through equity, which
is considered to be the riskier and costliest source of finance, looking to introduce
debt financing must consider and study the impact of debt on its financial position.

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What major company developments between August 2012 and May 2013 contribute to
this situation?

Jackson being a profitable company was unable to repay its loan on time because of some key
company developments which took place between August 2012 and May 2013. These
include:

 Repurchase of Stocks. In September 2012, Edwards was driven to repurchase 40%

of the outstanding common shares of stock for $10 million due to a group of dissident
shareholders. Jackson used $5million of its cash reserves and a $5million short term
loan by the Michigan State Bank to facilitate the stock repurchase. The short-term
loan by Jackson increased the debt ratio by almost two folds, 23% in August 2012 to
43%1 in May 2013. This action effected the debt-equity ratio which went from 0.3 in
August 2012 to 0.82 in May 2013. This showed that Jackson, which was
predominately financed through equity in the beginning, was now taking on more
debt and less equity, becoming insolvent, and affecting its ability in making loan
repayments in time and covering interest expenses.
 Significant Increase in inventory purchases. Jackson purchased significant
inventories which resulted in the. The purchase of the inventory impacted the current
ratio, transforming it from 2.5 in August 2012 to 1.43 in May 2013, thereby
decreasing their ability to repay its short-term loan because of the reduction in
liquidity. The purchase also led to the decrease in the acid test ratio from 2 in August
2012 to 14 in May 2013. Even though an acid test ration of 1 was acceptable for the
automotive industry, it still hindered the ability of Jackson to repay its loan. Inventory
purchases inevitably lowers the amount of working capital (a two-fold decrease for
Jackson Automotive), making it more difficult to repay loans as the availability of
current assets is impacted. The increase in current assets (inventory and A/R) made it
hard for Jackson to covert net income into cash. $2.4 million worth of capital
equipment was needed to maintain production capacity.
 Shortfalls. Shortfalls hindered Jackson’s ability to pay back the $5 million that was
due in June. Shipment delays due to material shortages caused the shortfall in April-
May sales (decrease in WIP of $5,040,000 in June). Interruptions caused by updating
1
Debt ratio = Total Liability/ Total asset
2
Debt-equity ratio = Total Liability/ Total Equity
3
Current ratio = Current asset/ Current liability
4
Acid-test ratio = (Current asset – Inventory)/ Current Liability

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key electrical components for the new air conditioning system severely hindered sales
for April-May, and attributed to the order backlog which currently captured 90% of
Jackson’s annual capacity. This was one of the key reason why Jackson wasn’t able to
repay its loan on time.

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Sources and Uses of funds statement for August 2012 through May 2013

Any increase in an asset is a use of funds; any decrease is a source. Any increase in a liability is a source of funds; any decrease is a use. Any
increase in equity is a source of funds; any decrease is a use.

AUG SEPT OCT NOV DEC JAN FEB MAR APRIL May
Total liabilities and equity 36671 31731 32383 32398 32224 32729 32794 31868 35094 35007
Current Liabilities 8380 13394 13714 13425 12959 13141 12921 12204 15281 15084
Shareholders' Equity 28291 18337 18669 18973 19265 19588 19873 19664 19813 19923

SOURCES AND USES

Sep-12 Oct-12 Nov-12 Dec-12 Jan-13 Feb-13 Mar-13 Apr-13 May-13 TOTAL
OF FUNDS ($000)

SOURCES OF FUNDS
DECREASE IN ASSETS5 4940 174 926 87 6127
6
INCREASE IN LIABILITY 5014 320 182 3077 8593
7
INCREASE IN EQUITY 332 304 292 323 285 149 110 1795
TOTAL SOURCES 9954 652 304 466 505 285 926 3226 197 16515

USES OF FUNDS
INCREASE IN ASSETS -652 -15 -505 -65 -3226 -4463
DECREASE IN LIABILITY -289 -466 -220 -717 -197 -1889
DECREASE IN EQUITY -9954 -209 -10163
TOTAL USES -9954 -652 -304 -466 -505 -285 -926 -3226 -197 -16515

5
Current month’s assets – Last month’s assets
6
Current month’s liabilities – Last month’s liabilities
7
Current month’s equity – Last month’s equity

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Question 2
The urgent need of the $2.4 million additional borrowing

Jackson Automotive Systems found itself in a difficult situation at the beginning of June,
2013 which attributed towards the need for a new loan. In the beginning of June, Jackson did
not have enough cash to repay its outstanding term loan by the end of June due to reason
already cited above. Jackson also needed to expand its credit facility to service normal
operations. Due to shortfalls in their operations Jackson needed and requested for an
extension of the existing loan until the end of September 2013 and an additional loan of $2.4
million to finance the purchase of new equipment. Jackson had spent very little on equipment
purchases in the previous years as a result of cost cutting and the desire to conserve cash
during poor economic conditions. This led to some vital components becoming worn out and
needed immediate replacement in order to avoid any production disruptions in the future and
to meet the backlog of their orders.

The need for the additional borrowing was urgent as Jackson would not be able to repay its
outstanding loan at the end of June. The purchase of raw materials beyond its needs in April
and May resulted in the accumulated materials amounting to $2,440,000 above normal
inventory levels, along with the repurchase of 1 million shares have reduced their cash
reserves and ability to pay their existing loans. Jackson is in lack of cash to repay the $5
million loan at the end of June. If the company cannot get the additional $2.4 million for the
new equipment, their production will definitely get in trouble, which will lead to a significant
decrease in sales in the next months. Therefore, due to the massive backlog of sales and the
need for the new equipment, the loan need is very urgent.

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Question 3
Jackson Automotive’s Financial Statements of the last four months of fiscal year 2013

Cash Budget for the last four months of fiscal year 2013
(October 2012- September 2013)

2013
June July August September
8
Beginning Cash Balance 4,994 1,627 6,536 7,034

Collection of Accounts Receivable9 3,744 10,881 6,474 7,201

Interest Income10 8 3 11 12
Bank Loan 0 2400 0 0
Total Cash Inflow11 3,752 13,284 6,485 7,213

Payments of Accounts Payable12 5,969 5200 5200 5200

Operating Expenses 750 750 750 750
Capital Expenditure 0 2400 0 0
Tax Payments13 375 0 0 375
Interest Expense14 25 25 37 37
Principal Payments15 0 0 0 7400
Dividend Payments 0 0 0 1200

Total Cash Outflow16 7,119 8,375 5,987 14,962

Net Cash Inflow17 -3,367 4,909 498 -7,749

Ending Cash Balance18 1,627 6,536 7,034 -715

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Ending Cash balance of previous month
9
Collection of Account receivables of current month = Account receivables of previous month
Account receivables = Sales forecasts value – Customer’s deposit
June = 12681-1800 = 10881; July = 7374-900 = 6474; August = 7201 – 0=7201
10
Interest Income = (0.02/12)*Beginning cash balance
11
Total Cash Inflow = Bank Loan + Interest Income + Collection of receivables
12
Previous month’s accounts payable
13
Tax payments = 1500/4 each quarter
14
Interest Expense = Bank Loan (0.06/12)
15
Payments of all bank loan
16
Total Cash Outflow = Dividend Payments+ Principal Payments+ Interest Expense+ Tax Payments+
Capital Expenditure+ Operating Expenses+ Payments of Accounts Payable
17
Net Cash Inflow = Total Cash inflow – Total Cash outflow
18
Ending Cash Balance = Beginning Cash Balance + Net Cash Flow

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 Pro forma Income Statement for the last four months of fiscal year 2013
(October 2012- September 2013)

2013
4 month
June July August September Total
Net sales19 12,681 7,374 7,201 7,394 34,650
COGS20 10,850 5,810 5,810 5,810 28,280
Gross profit21 1,831 1,564 1,391 1,584 6,370

Operating expenses 750 750 750 750 3,000

Depreciation and
amortization22 120 120 130 130 500
Interest expensea23 25 25 37 37 124
Interest incomeb24 8 3 11 12 34
Profit (loss) before tax25 944 672 485 679 2,780
Income taxesc26 321 228 165 231 945
Net income27 623 443 320 448 1,835
Dividends 0 0 0 1200 1,200

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Forecasted Sales figures
20
COGS June = (5200+ 2440/4 +5040); COGS of July, August and September = (5200 + 2440/4)/
each month
21
Gross profit = Net sales – COGS
22
For June and July it is (2400/20) and for August and September it is (2400/20/12 + 120)
23
Interest Expense = Bank loan * (0.06/12)
24
Interest Income = (0.02/12)*Cash
25
Profit before tax = Gross profit – operating expenses – dep & amor. – interest expense +interest
income
26
Income tax = Profit before tax * 034
27
Net Income = Profit before tax – Income tax

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 Balance sheet for the last four months of fiscal year 2013
(October 2012- September 2013)

2013
June July August September
28
Cash 1627 6536 7034 -715
Accounts receivablea29 10881 6474 7201 7394
Inventory30 6513 5903 5293 4683
Current assets31 19021 18913 19528 11362

Gross PP&E32 45500 45500 47900 47900

Accumulated
depreciationb33 31568 31688 31818 31948
Net PP&E34 13932 13812 16082 15952
Prepaid expenses 54 54 54 54
Total assets35 33007 32779 35664 27368

Accounts payablec36 5200 5200 5200 5200

Notes payable, bank37 5000 5000 7400 0
Accrued taxesd38 219 448 612 468
Other accrued expenses 1142 1142 1142 1142
Customer advance
payments39 900 0 0 0
Current liabilities 12461 11790 14354 6810

Shareholders' equity40 20546 20990 21310 20558

Total liabilities and equity 33007 32779 35664 27368
28
Ending cash balance of current month
29
Current month’s account receivables
30
Inventory = previous month’s inventory + 5200 – current month’s COGS
31
Current Assets = Cash + Account receivables + Inventory
32
In Gross PP&E calculation $2,400,000 is added for August & September which is the price of new
equipment
33
Accumulated Depreciation = Previous month’s Accumulated Depreciation + current month’s
Depreciation & Amortization
34
Net PP&E = PP&E – Accumulated Depreciation
35
Total Assets = Current Asset + Net PP&E + Prepaid Expense
36
Credit raw material purchases in last four months
37
Notes payable, bank in August 7400 (5000 + 2400) and 0 in September, when the loan is expected
to be paid fully
38
Outstanding taxes on 2012 fiscal year income were due January 15, 2013. On December 15, 2011,
March 15, 2012, June 15, 2012, and September 15, 2012, payments of 25% of each of the estimated
tax for 2012 ($1,500,000) were due. Taxes payable for 2013 were assumed to be $1,500,000 and
would be paid on December 15, 2012, March 15, 2013, June 15, 2013, and September 15, 2013, in
equal increments.
39
Customer Advance Payment: in June Jackson will shipp items for $1,800,000. So, the remaining
value of good the company owe its customer is $900,000 (out of $2.7 million deposit)
40
Shareholder’s equity = Previous month’s shareholder’s equity + Net income – Dividends

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Question 4
Is Jackson able to repay its loan at the end of the fiscal year 2013?

Base on the forecast and analysis of Jackson’s credit, the company will be able to repay its
loan at the end of the fiscal year. According to the cash ending balance in September, after
paying $7.4 million to Michigan State Bank, the company still have $485 thousand left in
their cash budget.

However, there are some specific risks associated with the proposed loan.

As mentioned above, the company will be able to repay the loan, however, under the
assumption that they get the high sales figures as their forecast. Market circumstances, such
as a recession, especially a down trend in the automotive assembly market may push small
businesses like Jackson into trouble. Under that situation, short-term finance can be a serious
risk for the borrower. A short-term loan may be renewed by the lender on much less
favorable terms than the original contract. Not only is the business faced with the high cost of
the capital, it may not be able to service the accumulated debt. This leaves the company in a
weak position where it could face bankruptcy.

Another risk the company may face is that borrowing more debt means they are changing the
capital budgeting to a riskier position. As a result, their shareholders will require a higher
return to compensate for the increased risk. If Jackson cannot afford the demand,
shareholders will end up selling the company’s shares, which may cause a fall in Jackson’s
share price on the market.

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Question 5
Sensitivity Analysis on the fiscal year-end cash balance when sales forecasts vary from expectation.

Sensitivity Analysis for 10% increase of Sales forecast Sensitivity Analysis for 20% increase of Sales forecast
Year End Cash Balance at present -715 Year End Cash Balance at present -715

Collection against Sales41 28,300 Collection against Sales 28,300

Increase of 10% 2830 Increase of 20% 5660

Payment against COGS42 20800 Payment against COGS 20800

Increase of 10% 2080 Increase of 20% 4160

Payment against operating Payment against operating

Expenses43 3000 Expenses 3000

Increase of 10% 300 Increase of 10% 600

Adjusted Cash Balance will be44 -265 Adjusted Cash Balance will be 185

41
Total collection of account receivables of four months: Jun, Jul, Aug, Sep
42
Payment for COGS of four months as expected = 5200*4
43
(750*4)
44
Adjusted Cash Balance = Year end cash balance + Increase 10% of Sales – Increase 10% of COGS – Increase 10% of Operating expense

13
Sensitivity Analysis for 10% Decrease of Sales forecast Sensitivity Analysis for 20% Decrease of Sales forecast
Year End Cash Balance at present -715 Year End Cash Balance at present -715

Collection against Sales 28300 Collection against Sales 28300

Decrease of 10% 2830 Decrease of 20% 5660

Payment against COGS 20800 Payment against COGS 20800

Decrease of 10% 2080 Decrease of 20% 4160

Payment against operating Payment against operating

Expenses 3000 Expenses 3000

Decrease of 10% 300 Decrease of 20% 600

Adjusted Cash Balance will be45 -1165 Adjusted Cash Balance will be -1615

45
Adjusted Cash Balance = Year End Cash Balance at present - Decrease 10% of Sales + Decrease 10% of COGS + Decrease 10% of Operating Expense

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As mentioned above, Jackson’s forecast and credit analysis is based on the assumption of the
last four months’ automotive assembly sales market. A decrease or increase in the forecast
sales performance will dramatically affect the company’s future cash flows, hence changing
Michigan State bank’s final decision. Therefore, it is critical for the bank and the company to
have a sensitivity analysis about how a variation in sales forecast will affect the company’s
final cash balance.
The analysis focus on four scenarios: two good scenarios, which include an increase 10% and
an increase 20% in sales performance and another two bad scenarios, which include a
decrease 10% and a decrease 20% in sales performance. A decrease or increase in sales
forecast figures will also lead to a decrease or increase in COGS and operating expense.
According to the results presented in four tables above, the best scenario is when the sales
forecast increase 20% more, in which the company will not only be able to repay the $7.4
million loan but also capable in paying out $1.2 million dividends for the shareholder.
However, if the worst scenario – a decrease 20% in sales – happens, the company will not be
able to repay the $7.4 million loan to the bank, not to mention the $1.2 million dividend. A
decrease of 10% in sales results in $35 thousand after repaying the total bank loan.
Therefore, any decrease more than 10% towards sales forecast will be a risk towards
Michigan State bank’s decision to agree with Jackson’s loan request.

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Question 6
Should the bank extend the maturity of the current loan and approve the additional
loan?
The bank can extend the maturity of the current loan for Jackson Automotive and also
approve the additional loan of $2.4 million subjected to the future cash flows based on
forecasted sales. As we can see from Jackson’s cash budget, the ending cash balance in the
month of September after the repayment of the entire $7.4 million loan, is $485 thousand.
The ending cash balance of $485 thousand in the month of September is subjected to Jackson
meeting its expected sales. However, if Jackson does not meet its expected sales targets for
the last 4 months it will not be able to pay back the loan to the bank. Therefore, the bank does
face risks in the approval of both the extension of the existing loan and the approval of the
new loan if Jackson does not meet their expected sales targets.

To reduce the risks of the loan for the bank, the bank should impose certain terms and
conditions on the loan such as:

 The bank can ask for a higher than 6% annual interest rate to compensate for the
higher risk.
 The bank may force Jackson to sell its treasury stocks if they fail to achieve their
expected sales targets in the month of June. Since Jackson can only meet its cash
balance as shown in the cash budget based on the expectations of its sales, this seems
to be an appropriate action which the bank can take if the June forecasts are not met.
 The bank can ask Jackson to pledge some of its assets as collateral for the loan, which
then makes it a secured loan. The bank may ask for the security of any of the
company’s assets against the loan to reduce the risk of non-payment of the loan.

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Question 7

Why did the company repurchase a substantial fraction of its outstanding common
stocks?

Based on the case study and information provided, Jackson Automotive wants to repurchase
40% stock from a group of dissident shareholders.

Generally, a company would have repurchased its own stock due the following facts:

 The prevailing share price might be lower than fair value therefore company would

have repurchased it to sell in future at higher prevailing share price.

 The owner of the company would be afraid of loss of management control if those

shares would have been purchased by someone else.

What’s the impact of the repurchase stock on Jackson’s financial condition?

It can be seen that the repurchase of stock by using cash and short term loan is not always a
smart move of company. However, it can create great impacts on Jackson Automotive’s
condition in this case.

Firstly, it would reassure market and public that their business is going well, which could
stimulate new potential investors who will help company to grow up. The market might
assume that company only buy their own stocks when they completely believe that share
value will increase afterward, so company’s share price would increase and become more
attractive on the market.

Secondly, this buy – back would reduce the dilution, dissident shareholders, voting rights
from shareholders who are holding company’s shares. As a result, it will increase ownership,
especially the power of controlling company from Edward or other managers; reducing some
agency problems or conflict between different parties.

Thirdly, it is clearly to see that Jackson Automotive is under financial crisis, this repurchase
might create some positive impact on various ratios. By reducing share capital, total assets of
company will reduce, which would have positive impact on the return on asset of company,
earning per share and return on equity. The repurchase of stock would have increased the

17
earnings per share of the company and would reduce the book value per share as per balance
sheet. The company will not have to pay any dividends on repurchased shares.

On the other hand, there are also some negative impacts on company’s financial condition,
especially its liquidity. Obviously, there is a reduction in cash budget, because cash was used
to buy back share from shareholders. It can be harder for the company to ask Michigan State
Bank for other loans in the future.

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Question 8

Critically assess the Jackson Automotive’s proposed dividend payout in September

2013. Should the bank agree with the payout? What seems to be an appropriate
amount?

Dividend policy represents a trade-off between paying out earnings or using them as a source
of finance. There is a strong inter-relationship between the investment, financing and
dividends decisions that firm managers have to make.

According to the financial statement provided, the proposed dividend pay-out is not possible
given that Jackson Automotive is undergoing a difficult financial period. According to
Jackson’s Cash budget in September of 2013, the total year-end cash balance is $485
thousand without dividend payout. Therefore, Jackson cannot cover all the payment for the
$1.2 million dividend. Another option for the company to choose is to payout dividend with
all of their cash balance, $485 thousand. However, it would greatly impact on Jackson’s
liquidity, which in turn will affect the company’s financial state in the following ways:

Firstly, if the company decides to use all of its $485 thousand cash for dividend payout, it
will face a severe liquidity situation since there will be no cash left. In most cases, Jackson
needs to retain enough cash for reinvesting in their business and cover some operating costs,
as well as backing up for unexpected circumstances.

Secondly, greater investment and funding requirements encourages lower dividend payment
and greater earnings retention, whereas greater payment of dividends likely leads to the need
for more external funding and use of debt. With a higher debt to equity ratio, the company is
facing a higher risk, which will lead to a higher interest rate required from the bank. In a
more serious situation, the company’s future loans may not be approved because of its low
liquidity and financial problems. Therefore, it is not a smart move of Jackson to pay out all of
its year-end cash balance while facing difficulties in attracting financing sources.

Thirdly, the amount of dividend is three times larger than it was paid in last fiscal year, which
seems to be unusual and it might increase the expectation of shareholders for future dividends
payment and when it would not be made the share price would come down. Therefore the
company should follow the constant and normal dividend payout ratio to bring stability in
share price.

19
Based on the information mentioned, the Michigan State Bank should not agree with the
dividend payout proposal.

Considering 2012 dividend payout and this year’s financial situation, the best possible
dividend payout amount for 2013 fiscal year is $400 thousand – the same as 2012 dividend
payout. With this amount, Jackson will not show any negative signal about its financial state
to the shareholders, but give a constant perspective about the company’s development
instead.

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CONCLUSION

While evaluating whether to approve the new loan for Jackson Automotive, the Michigan
State Bank should take into consideration its long history and client relationship with Jackson
in addition to Jackson’s current financial situation. The bank should also take into account the
good reputation of Larry Edwards and of Jackson Automotive in the local business
community. Larry has a strong working capital and follows conservative financial policies
indicating his willingness to get rid of the company’s debts. As the financial statements
provided by Jackson are based on expected sales and forecasts, there are risks which the bank
faces in the event of Jackson not meeting its forecasted sales and not being able to repay the
loan. However, as stated in part sixth of the report, the bank can effectively minimize its risks
through pursuing certain policies. In conclusion, the extension of Jackson’s previous loan and
approval of their new loan will be beneficial for both the bank and Jackson.

21