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.

Assets

Cash $20, Accounts Receivables $90.00, Inventory $90, Plant and equipment $500

Total Assets $700

Liabilities and Equity

Accounts Payable $30, Notes Payable $40, Accruals $30, Long term debt $150 Equity (ret. earnings = $300) $450,

Total Liabilities and equity $700

Also assume sales = $500,000; cost of goods sold = $360,000; and the market value of equity is equal to the book value.

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

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.

Altman's discriminant function is given by: Z =1.2X1+1.4X2+3.3X3+0.6X4+1.0X5

All numbers are in $000s.

1.Based on the Altman's Z score only, should you approve MNO Inc.'s application to your bank for a $500,000 capital expansion loan?

2.If sales for MNO were $250,000, the market value of equity was only half of book value, and all other values are unchanged, would your credit decision change?