In the Z Score Model for Private fiRms, the Z

question 25

Essay

In the Z score model for private firms, the Z score is calculated as Z = 0.717 (Net Working Capital/Total Assets) + 0.847 (Accumulated Retained Earnings/Total Assets) +3.10 (EBIT/Total Assets) + 0.420 (Book Value of Equity/Total Liabilities) +0.998 (Sales/Total Assets).You are part owner of a private firm.The firm currently has a Z score of 2.60.You find out that you have in fact made a major mistake in the valuation of your assets, which turns out to be 20% higher than you previously had thought.Leverage remains unaffected, however, with equal shares debt and equity.Should you be worried about your firm's survival chances? Why or why not?

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Definitions:

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