Maurice Tutor

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    Argosy University/ Phoniex University/
    Nov-2005 - Oct-2011

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    Phoniex University
    Oct-2001 - Nov-2016

Category > Management Posted 03 Feb 2018 My Price 9.00

ABC, Inc

The following is ABC, Inc.’s, balance sheet (in thousands):

Also, sales equal $500, cost of goods sold equals $360, interest payments equal $62, taxes equal $56, and net income equals $22. The beginning retained earnings is $0, the market value of equity is equal to its book value, and the company pays no dividends.

a. Calculate Altman’s Z -score for ABC, Inc., if ABC has a 50 percent dividend payout ratio and the market value of equity is equal to its book value. Recall the following:

b. Should you approve ABC Inc.’s application to your bank for $500,000 for a capital expansion loan?

c. If ABC’s sales were $450,000, taxes were $16,000, and the market value of equity fell to one-quarter of its book value (assume cost of goods sold and interest are unchanged), how would that change ABC’s income statement? If ABC’s tax liability could be used to offset tax liabilities incurred by the other divisions of the firm, would your credit decision change?

d. What are some of the shortcomings of using a discriminant function model to evaluate credit risk?

 

Answers

Maurice Tutor
(5)
Status NEW Posted 03 Feb 2018 12:02 AM My Price 9.00

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