2 a) James Bond applied for a mortgage loan. A mortgage loan applicant has the following data: Gross income Monthly mortgage P&I payment Annual property Annual homeowner's Other debt payments/ taxes insurance year $220,000 $5,600 $6,300 $1,050 $33,000 Calculate the gross debt service (GDS) ratio and the total debt service (TDS) ratio and decide for the mortgage loan application. Show each step of your calculation. b) The following are TJ's Balance Sheet and Income Statement (in millions): [6 marks] Balance Sheet (in millions) Assets Liabilities Cash $130 Accounts payable $120 Accounts receivable 190. Notes payable 110 Inventory 270 Accruals 90 Plant and equipment 620 Long-term debt 310 Total $1,210 Equity 490 Total liabilities and equity $1,210 Income Statement (in millions) Total sales Cost of goods sold Depreciation Interest payments $690 290 50 55 Taxes Net income $205 Also, retained earnings (opening balance) is $0, the market value of equity is 50% of its book value and the company has a 40% dividend payout ratio. i) Calculate Altman's Z-score for the TJ. Then, based on your answer, decide whether you should approve TJ's application to your bank for $4 million of a capital expansion loan? Please show each step of your calculation. [12 marks] ii) Discuss the shortcomings of using the Altman's Z-score model to evaluate the credit risk. Support your answers with relevant references. [16 marks] c) If the British Pound to U.S. Dollar is expected to depreciate in the near future, discuss would a U.S. bank in London, U.K, prefer to take a net long or net short position in its asset positions? [6 marks]