Calculation of Altman's Z-Score: Suppose That the Financial Ratios of a Potential

question 72

Multiple Choice

Calculation of Altman's Z-Score: Suppose that the financial ratios of a potential borrowing firm took the following values: X₁ = Net working capital/Total assets = .25, X₂ = Retained earnings/Total assets = .30, X₃ = Earnings before interest and taxes/Total assets = .35, X₄ = Market value of equity/Book value of long-term debt = .50, X₅ = Sales/Total assets ratio = 0.9. Calculate the Altman's Z-score for this firm.

• A) 2.30
• B) 3.075
• C) 9.8
• D) 1.96

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Definitions:

Long-Run Cost Curve

A graphical representation showing the minimum cost at which any given level of output can be produced in the long run, where all inputs are variable.

Industry Supply Curve

A graphical representation showing the quantities of a product that firms across an industry are willing to supply at different price levels.

Lump Sum Tax

A tax that is a fixed amount, regardless of the taxpayer’s income level, assets, or usage of services.

Long-Run Cost

The total cost of production when all factors of production can be varied, typically associated with the planning of long-term business strategies.