The Here Today Corporation has applied to your bank for a loan. You have their ﬁnancial statements and the revised Z-score model of:
Z = 6.56 (Net Working Capital/Total Assets) + 3.26 (Accumulated Retained Earnings/Total Assets) +6.72 (EBIT/Total Assets) + 1.05 (Book Value of Equity/Total Liabilities) where: Z

Question

The Here Today Corporation has applied to your bank for a loan. You have their ﬁnancial statements and the revised Z-score model of:
Z = 6.56 (Net Working Capital/Total Assets) + 3.26 (Accumulated Retained Earnings/Total Assets) +6.72 (EBIT/Total Assets) + 1.05 (Book Value of Equity/Total Liabilities) where: Z < 1.23 predicts bankruptcy. A Z score between 1.23 and 2.90 indicates gray area. A Z score greater than 2.90 indicates no bankruptcy. From the ﬁnancial statements you gathered net working capital of €237,500; accumulated retained earnings of €120,000; book value of equity of €950,000; total assets of €4,750,000; EBIT of €261,250; and total liabilities of €3,800,000. Should the bank lend to Here Today?

Quizplus · Accepted Answer

The Answer of The Here Today Corporation has applied to your bank for a loan. You have their ﬁnancial statements and the revised Z-score model of:
Z = 6.56 (Net Working Capital/Total Assets) + 3.26 (Accumulated Retained Earnings/Total Assets) +6.72 (EBIT/Total Assets) + 1.05 (Book Value of Equity/Total Liabilities) where: Z < 1.23 predicts bankruptcy. A Z score between 1.23 and 2.90 indicates gray area. A Z score greater than 2.90 indicates no bankruptcy. From the ﬁnancial statements you gathered net working capital of €237,500; accumulated retained earnings of €120,000; book value of equity of €950,000; total assets of €4,750,000; EBIT of €261,250; and total liabilities of €3,800,000. Should the bank lend to Here Today?

The Here Today Corporation Has Applied to Your Bank for a Loan