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:

Sociocultural Approach

A psychological perspective that examines how societal and cultural influences affect behavior and mental processes.

Achievement Motivation

The inner drive or pressure to accomplish set goals, pursue excellence, and overcome obstacles.

Correlational Research

Research that examines the relationships between variables, whose purpose is to examine whether and how two variables change together.

Correlational Coefficient

A statistical measure that indicates the extent to which two or more variables fluctuate together, ranging from -1 to 1, where values closer to 1 or -1 represent a stronger relationship.