Suppose that the financial ratios of a potential borrowing firm took the following values:
X₁ = 0.30
X₂ = 0
X₃ = -0.30
X₄ = 0.15
X₅ = 2.1
Altman's discriminant function takes the form:
Z = 1.2 X₁+ 1.4 X₂ + 3.3 X₃ + 0.6 X₄ + 1.0 X₅
The Z score for the firm would be

Question

Quizplus · Accepted Answer

Z = 1.2(0.30) + 1.4(0.00) + 3.3(-0.30) + 0.6(0.15) + 1.0(2.1)
 Z = 0.36 + 0.00 - 0.99 + 0.09 + 2.1 = 1.56.

Suppose That the Financial Ratios of a Potential Borrowing Firm