The Key Intuition of a Z-Score Model Like Altman's Is

question 13

Multiple Choice

The key intuition of a Z-score model like Altman's is that:

• A) only publicly traded firms can be evaluated.
• B) one will be just as well off by guessing on default rates.
• C) all corporations will default at least once.
• D) financial profiles of bankrupt and non-bankrupt firms are very different one year before bankruptcy.
• E) privately traded firms have better financial information which are disclosed to lenders and need not rely on any efficient market notions.

---

Definitions:

Sales Revenue

Income earned from the sale of goods or services before any expenses are deducted.

Refund Liability

Refund liability refers to the obligation a company has to return money to its customers for products or services that were returned, canceled, or unsatisfactory.

Freight Costs

Expenses associated with transporting goods from one location to another.

Operating Expense

Relates to the costs associated with the day-to-day activities of running a business, excluding direct production costs.