Calculation of Altman's Z-Score: Suppose that the financial ratios of a potential borrowing firm took the following values: X₁ = Net working capital/Total assets = .15, X₂ = Retained earnings/Total assets = .10, X₃ = Earnings before interest and taxes/Total assets = .15, X₄ = Market value of equity/Book value of long-term debt = .40, X₅ = Sales/Total assets ratio = 0.8. Calculate the Altman's Z-score for this firm.

Question

Quizplus · Accepted Answer

Altman's Z-Score formula is: Z-Score = 1.2*(X₁) + 1.4*(X₂) + 3.3*(X₃) + 0.6*(X₄) + 1.0*(X₅) Plugging in the values given in the question, we get: Z-Score = 1.2*(0.15) + 1.4*(0.10) + 3.3*(0.15) + 0.6*(0.40) + 1.0*(0.80) Z-Score = 1.855 Therefore, the correct option is (D) 1.855.

Calculation of Altman's Z-Score: Suppose That the Financial Ratios of a Potential