IMPORTANT NOTES ABOUT DUE DATE AND SUBMISSION FORMAT: . Due date: 11:59 PM ET. on MONDAY, June 27,2022. . Deliverable: A project report not to exceed 3 pages in total. Please clearly type or mark your answers to avoid any ambiguity and to facilitate grading. Double check your answers before submission! . Please, UPLOAD your completed typed assignment (in Microsoft WORD or PDF and Microsoft EXCEL for calculations) to the course site on Brightspace. Please, double check your attached le before submission to make sure it is completely legible and its looks exactly as you intended. . Please make sure you rename the file to include your own Full Name, Course number (ECON452) and Term (Summer1-2022) before you upload your work; the same information, as well as the title of the assignment, must be included in the paper (WORD or PDF and EXCEL). Refer to the syllabus for the other submission details. The Excel workbook containing the results must t (rows and columns) on ONE page (this is an option in the Excel Print function) and shall be submitted separately. . You should consider working on this project assignment as seriously as you would on an exam, with the difference that this assignment is \"open-book," giving you the opportunity to go back and check the material covered in the text and other posted related documents. Thus, they are also a good preparation for the final exam. . Please report to me any typo/mistake you notice, which I might have overlooked. Let me know if you have any question or concern. 1. Purpose: The purpose of this project is to provide hands-on opportunity to conduct a simple Credit Risk Analysis (covered in Unit 9, Week 3), using the Altman Z-Score model (also see Additional Background Reading posted under "Project\"). Use the information provided in the Excel spreadsheet under the same folder as this handout (see also Week 3 Class Notes) to calculate the Altman's ZScore for ZINGA LINK Product, |nc.; Briey comment on your results. . Instructions: 1) Use Model 1 in the posted accompanying Excel spreadsheet to predict the probability of financial distress and possibly bankruptcy for ZINGA LINK, assuming ZINGA LINK is a public company. 2) To decide whether ZINGA LINK will experience financial distress or not, refer to the proposed cutoff points, which are part of the models presented on page 1 of the spreadsheet. (Also see posted sample spreadsheet) 3) Based on the results you obtained, assign a likely \"Credit Rating," per Standard & Poors or Moody's classification, as discussed in the relevant class material or your own research. Please, provide complete and detailed reference(s) if you use your own researched material or additional sources for the analysis and assignment of a rating. 4) Note that the Altman's variable X] involves \"Net Working Capital\" that equals \"Current Assets" less "Current Liabilities\MAX POINTS CRITERIA Adequate application of analytical skills and implementation of the correct model in the Excel Spreadsheet. Correct interpretation of the variable and calculations. One (1) point will be deducted for each variable that is misinterpreted and incorrectly measured. Adequate interpretation of the nal findings and conclusion (correct numerical results and meaningful rating estimate). 10 POINTS Potential maximum points to be earned for meeting or exceeding expectations. ALTMAN'S Z-Score Models for Predicting a Firms' Financial Distress Model 1 (Original): For publicly-held companies Z = 1.2X1 + 1.4X2 + 3.3X3 + 0.6X4 + 1X5 X1 = Net Working Capital/Total Assets X2 = Retained Earnings/Total Assets X3 = EBIT/Total Assets X4 = Market Value of All Assets/Book Value of Total Liabilities X5 = Sales/Total Assets Note: Use "Book Value" as proxy for "Market Value". Example: for X4 you'd use Book Value of All Assets. Z* = Cutoff point = 2.675 . If Z Firm can be reasonably be expected to experience severe financial distress, and possibly bankruptcy, within the next year. . If Z > 2.675 => No financial distress predicted. . If Z Firm can be reasonably be expected to experience severe financial distress, and possibly bankruptcy, within one year. If 1.81 Financial distress and possible bankruptcy. If Z > 2.675 => No financial distress predicted. Note: Model was found 80-90% accurate when using a cutoff point of 2.675 Model 2: For privately-held companies Z' = 0.717X1 + 0.847X2 + 3.107X3 + 0.420X4 + 0.998X X1 = Net Working Capital/Total Assets X2 = Retained Earnings/Total Assets X3 = EBIT/Total Assets X4 = Book Value of All Assets/Book Value of Total Liabilities X5 = Sales/Total AssetsX5 = Sales/Total Assets If Z' Bankruptcy is predicted within one year If 1.23 Financial distress, possible bankruptcy . If Z' > 2.90 => No Financial distress predicted Note: The predictive ability of the model was even better when using a cutoff point of 1.81. References: 1) Altman, E. I., "Predicting Financial Distress of Companies: Revisiting the Z-Score and ZETA(R) Models" (July 2000) 2) Also see chap. 21 in Fabozzi, F. J., Bond Markets, Analysis and Strategies, 8e, for other and more sophisticated credit risk models. Some Common Financial Ratios 1. Liquidity Ratios - measure the firm's ability to meet its current obligations 1.1 Current Ratio = Current Assets/Current Liabilities 1.2 Quick Ratio = (Current Assets - Inventories)/Current Liabilities 2. Efficiency Ratios - asset management ratios; how well firm manages its assets 2.1 Inventory Turnover Ratio = Cost of Goods Sold/Inventory or Sales/Inventory 2.2 Accounts Receivable Turnover Ratio = Credit Sales/Accounts Receivable 2.3 Average Collection Period = Accounts Receivable/(Annual Credit Sales/360) or you can use 365 2.4 Fixed Asset Turnover Ratio = Sales/Net Fixed Assets 2.5 Total Asset Turnover Ratio = Sales/Total Assets 3. Leverage Ratios or Debt management ratios: measure degree to which firm uses debt to finance assets 3.1 Total Debt Ratio = Total Debt/Total Assets = (Total Assets - Total Equity)/Total Assets 3.2 Long-Debt Ratio = Long-Term Debt/Total Assets 3.3 Long-Term Debt to Total Capitalization Ratio = LTD/(LTD + Preferred Equity + Common Equity) 3.4 Debt-to-Equity Ratio = Total Debt/Total Equity 3.5 Long-Term Debt to Equity Ratio = LTD/(Preferred Equity + Common Equity) 4. Coverage Ratios: measures firm's ability to pay certain expenses (eg. interest), similar to liquidity ratios 4.1 Times Interest Earned Ratio = EBIT/Interest Expense 4.2 Cash Coverage Ratio = (EBIT + Non-Cash Expenses)/Interest Expense5. Profitability Ratios - measures how profitable a firm has been over a period of time 5.1 Gross Profit Margin = Gross Profit/Sales 5.2 Operating Profit Margin = Net Operating Income/Sales 5.3 Net Profit Margin = Net Income/Sales 5.4 ROA = Net Income/Total Assets 5.5 ROE = Net Income/Total Equity 5.6 Return on Common Equity (or ROCE) = Net Income Available to Common/Common Equity 5.7 Du Pont System: ROE = PM x TAT x EM NOTE: CA = Current Assets ROA = Return on Assets CL = Current Liabilities ROE = Return on Equity LTD = Long-Term Debt TAT = Total Assets Turnover COGS = Cost of Goods Sold EM = Equity Multiplier PM = Profit Margin EBIT = Earnings Before Interest and Taxes REQUIRED TASK: Referring to the financial statements below, apply the Altman's Z-score model 1 to predict ZINGA LINK's likelihood of financial distress. Interpret your results, including a comment on the change between 2016 and 2017.ZINGA LINK Products, Inc. Balance Sheet, As of December 31, 2017 Assets 2017 2016 Cash and Equivalents 52,000 57,600 Accounts Receivable 402,000 351,200 Inventory 836,000 715,200 Total Current Assets 1,290,000 1, 124,000 Plant & Equipment 527,000 491,000 Accumulated Depreciation 166,200 146,200 Net Fixed Assets 360,800 344,800 Total Assets 1,650,800 1,468,800 Liabilities and Owner's Equity Accounts Payable 175,200 145,600 Short-term Notes Payable 225,000 200,000 Other Current Liabilities 140,000 136,000 Total Current Liabilities 540,200 481,600 Long-term Debt 424,612 323,432 Total Liabilities 964, 812 805,032 Common Stock 460,000 460,000 Retained Earnings 225,988 203,768 Total Shareholder's Equity 685, 988 663, 768 Total Liabilities and Owner's Equity 1,650,800 1,468,800 ZINGA LINK Products, Inc. Income Statement, For the Year Ended December 31, 2017 ($ in 000's) 2017 2016 Sales 3,850.00 3,432.00 Cost of Goods Sold 3,250.00 2,864.00 Gross Profit 600.00 568.00 Selling and G&A Expenses 330.30 240.00 Fixed Expenses 100.00 100.00 Depreciation Expense 20.00 18.90 EBIT 149.70 209.10 Interest Expense 76.00 62.50 Earnings Before Taxes 73.70 146.60 Taxes 29.48 58.64ZINGA LINK Products, Inc. Income Statement, For the Year Ended December 31, 2017 ($ in 000's) 2017 2016 Sales 3,850.00 3,432.00 Cost of Goods Sold 3,250.00 2,864.00 Gross Profit 600.00 568.00 Selling and G&A Expenses 330.30 240.00 Fixed Expenses 100.00 100.00 Depreciation Expense 20.00 18.90 EBIT 149.70 209.10 Interest Expense 76.00 62.50 Earnings Before Taxes 73.70 146.60 Taxes 29.48 58.64 Net Income 44.22 87.96 Notes: Tax Rate 40%