MNO Inc., a publicly traded manufacturing firm in the United States, has provided the

following financial information in its application for a loan. All numbers are in

thousands of dollars.

Also assume sales $=$$$450,000$; cost of goods sold $=$$$310,000$; and the market value of

equity is equal to the book value. Also, retained earnings are $$22,000.$

Altman's discriminant function is given by:

$Z=1\mathrm{.}2x_1+1\mathrm{.}4x_2+3\mathrm{.}3x_3+0\mathrm{.}6x_4+1\mathrm{.}0x_5$

a$.$ What is the Altman discriminant function value for MNO Inc.? Recall that:

$(x_1)=$ Working capital$/$total assets ratio

$(x_2)=$ Retained earnings$/$total assets ratio

$(x_3)=$ Earnings before interest and taxes$/$total assets ratio

$(x_4)=$ Market value of equity$/$book value of long$-$term debt ratio

$(x_s)=$ Sales$/$total assets ratio

Net working capital $=$ Current assets $-$ Current liabilities.

Current assets $=$ Cash $+$ Accounts receivable $+$ Inventories.

Current liabilities $=$ Accounts payable $+$ Accruals $+$ Notes payable.

EBIT $=$ Revenues $-$ cost of goods sold

b$.$ Based on the Altman's Z$-$score only, should you approve MNO Inc.$\text{'}$s application to

your bank for a $$500,000$ capital expansion loan?

c$.$ If sales for MNO were $$300,000,$ the market value of equity was only half of book

value, and all other values are unchanged, would your credit decision change?