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Question
the following data are presented for zero company.
| working capital | $60,000 |
| total assets | 400,000 |
| retained earnings | 20,000 |
| earnings before interest and taxes | 40,000 |
| market value of equity | 80,000 |
| book value of total debt | 200,000 |
| sales | 300,000 |
Z score formula:
Z = .012X1 + .014X2 + .033X3 + .006X4 + .010X5
X1 = Working Capital/Total Assets
X2 = Retained Earnings (balance sheet)/Total Assets
X3 = Earnings Before Interest and Taxes/Total Assets
X4 = Market Value of Equity/Book Value of Total Debt
X5 = Sales/Total Assets
required:
| a. | Compute the Z score for Zero Company. |
| b. | considering the altman model, comment on the likelihood that this firm will experience financial failure. |
Answer
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