125% + TACC612 Sample Exam Questions Solutions TulT 1 * * 12. You are provided with the financial statements for APS Limited below. Required: (a) Compute Altman's Z score for 2016 according to the following discriminant analysis function: Z-0.012 (X1) + 0.014 (X2) + 0.033 (X3) +0.006 (X4) +0.999 (X5) XI - Working capital/total assets; X2 - Retained earnings/total assets; X3 - Earnings before interest and taxes/total assets; X4 - Market value of equity/book value of total liabilities; X5 - Sales/total assets. (Assume working capital - current assets - current liabilities. Also note that all variables other than X5 are expressed as percentages, whereas sales/total assets is different, i.e. 150% is entered as "1.5" in the model). (b) Using the cut-off rules for this model, how distressed was APS Ltd. both one and two years prior to failure? Comment on how well Atman's Z score model performed in predicting the failure of APS Ltd. (c) How should an analyst interpret the "grey area" in the cut-off rules when classifying financial distressed firms? (d) Would the Altman Z-score model be suitable for predicting distress among private organization? Why or why not? 125% + TACC612 Sample Exam Questions Solutions TulT 1 * * 12. You are provided with the financial statements for APS Limited below. Required: (a) Compute Altman's Z score for 2016 according to the following discriminant analysis function: Z-0.012 (X1) + 0.014 (X2) + 0.033 (X3) +0.006 (X4) +0.999 (X5) XI - Working capital/total assets; X2 - Retained earnings/total assets; X3 - Earnings before interest and taxes/total assets; X4 - Market value of equity/book value of total liabilities; X5 - Sales/total assets. (Assume working capital - current assets - current liabilities. Also note that all variables other than X5 are expressed as percentages, whereas sales/total assets is different, i.e. 150% is entered as "1.5" in the model). (b) Using the cut-off rules for this model, how distressed was APS Ltd. both one and two years prior to failure? Comment on how well Atman's Z score model performed in predicting the failure of APS Ltd. (c) How should an analyst interpret the "grey area" in the cut-off rules when classifying financial distressed firms? (d) Would the Altman Z-score model be suitable for predicting distress among private organization? Why or why not