2.The following data are presented for Zero Company.Working capital$ 60,000Total assets400,000Retained earnings20,000Earnings before interest and taxes40,000Market value of equity80,000Book value of total debt200,000Sales300,000Z score formula:Z = .012X1+ .014X2+ .033X3+ .006X4+ .010X5X1= Working Capital/Total AssetsX2= Retained Earnings (balance sheet)/Total AssetsX3= Earnings Before Interest and Taxes/Total AssetsX4= Market Value of Equity/Book Value of Total DebtX5= Sales/Total AssetsRequired:a.Compute the Z score for Zero Company.b.Considering the Altman model, comment on the likelihood that this firm will experience financial failure.ANS:

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3.The following data are presented for Rocket Company.Working capital$100,000Total assets300,000Retained earnings40,000Earnings before interest and taxes60,000Market value of equity100,000Book value of total debt220,000Sales400,000Z Score Formula:Z = .012X1+ .014X2+ .033X3+ .006X4+ .010X5X1= Working Capital/Total AssetsX2= Retained Earnings (balance sheet)/Total AssetsX3= Earnings Before Interest and Taxes/Total AssetsX4= Market Value of Equity/Book Value of Total DebtX5= Sales/Total AssetsRequired:a.Compute the Z score for Rocket Company.b.Considering the Altman model, comment on the likelihood that this firm will experience financial failure.ANS:

4.The following data are presented for Hillsdale Company.2010Net income as reported$60,0002010Inventory reserve$30,0002009Inventory reserve$20,0002010Income taxes$20,0002010Income before income taxes$80,000Required:Compute the approximate income for 2010 if inventory had been valued at approximate current cost.ANS: