Q1, On May 15, 2020, Tsingpre Airlines has applied for loan from your bank. After calculating Altman Z for Tsingpre Airlines you note that it exceeds the Altman Z threshold and recommend approval of the loan request. Unfortunately, your chief credit manager rejects the loan and suggests that you have omitted one of the 5Cs of credit. Present arguments on why the credit manager has disputed your decision.

In Question 1, we discussed Altman Z that measures a firms creditworthiness

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An index that measures ability to obtain external financing is the KZ Index. The KZ-Index (Kaplan-Zingales Index) is a relative measurement of reliance on external financing. Companies with a higher KZ-Index scores are more likely to experience difficulties when financial conditions tighten since they may have difficulty financing their ongoing operations.

The KZ-Index (Kaplan-Zingales Index) is described in Lamont, Polk and Saa-Requejo (2001):

Where:Cash Flows = (Income Before Extraordinary Itemst + Total Depreciation and Amortizationt), K = Property, Plant and Equipmentt-1, Q = (Market Capitalizationt + Total Shareholder's Equityt - Book Value of Common Equityt Deferred Tax Assetst) / Total Shareholder's Equityt, Debt = Total Long Term Debtt + Notes Payablet + Current Portion of Long Term Debtt ,Dividends = Total Cash Dividends Paidt (common and preferred) and Cash = Cash and Short-Term Investmentst. The ratio has been slightly modified by reducing the number of decimal places.

Your bank manager has asked you if it is possible to combine Altman Z and KZ index to permit improved decisions on whether a firm should have their loans approved (or rejected). You have created the figure below.

High Altman Z & Low Kaplan-Zingales KZ

High Altman Z & High Kaplan-Zingales KZ

Quadrant 2

Quadrant 1

Low Altman Z & Low Kaplan-Zingales KZ

Low Altman Z & High Kaplan-Zingales KZ

Quadrant 3

Quadrant 4

Given the four quadrants (Quadrants 1 to Quadrant 4) develop justifications for either approving or rejecting a loan from each quadrant.

Hi, pls do assist me with Question 3. I hope this is better, thank you

In Question 1, we discussed Altman Z that measures a firm's creditworthiness: An index that measures ability to obtain external financing is the KZ Index The KZ-Index (Kaplan-Zingales Index) is a relative measurement of reliance on external financing. Companies with a higher KZ-Index scores are more likely to experience difficulties when financial conditions tighten since they may have difficulty financing their ongoing operations. The KZ-Index (Kaplan-Zingales Index) is described in Lamont, Polk and Saa-Requejo (2001): Where: Cash Flows = (Income Before Extraordinary Items + Total Depreciation and Amortization), K = Property, Plant and Equipment, Q-(Market Capitalization, + Total Shareholder's Equity, - Book Value of Common Equity, Deferred Tax Assets)/Total Shareholder's Equity, Debt Total Long Term Debt, + Notes Payable, + Current Portion of Long Term Debt, Dividends = Total Cash Dividends Paid, (common and preferred) and Cash Cash and Short-Term Investments, The ratio has been slightly modified by reducing the number of decimal places. Your bank manager has asked you if it is possible to combine Altman Z and KZ index to permit improved decisions on whether a firm should have their loans approved (or rejected). You have created the figure below. High Altman Z & High Kaplan-Zingales KZ High Altman Z & Low Kaplan-Zingales KZ Quadrant 2 Quadrant 1 Low Altman Z & Low Kaplan-Zingales KZ Quadrant 3 Low Altman Z & High Kaplan-Zingales KZ Quadrant 4 Given the four quadrants (Quadrants 1 to Quadrant 4) develop justifications for either approving or rejecting a loan from each quadrant Please ensure that you use the spaces provided in the next page for your answer. QUESTIONI 15 Marks Consider the coefficients of Altman's Z-scere. Where WC-Werking Capital, TA - Total Asst. RE-Retained Faming MVE-Market Value of Equity and BVLTD -Book Value of Long-Term Debt. On May 15.2000. Tsingre Airlines has applied for loan from your bank. After calculating Alman for singpre Airlines you note that it exceeds the Altman 2 threshold and recommend approval of the loan request infortunately, your chief credit manager rejects the loan and suggests that you have omitted one of the SC of credit. Praesent agence by the credit manager QUESTION 3 | 10 Marks In Question I, we discussed AlmanZ that measures a fim's creditworthiness An index that measures ability to obtain external financing is the Kinder The Kinder Kalenders relative measurement of reliance on estema financing Companies with a higher Z Index wese mere Sky experience difficulties when financial condities signen since they may have difficulty financing the spring operations The K2-Index Kaplan-Zingales Index) is described in Lament. Peik and Sus-Roqrasjo (2001) Where Cash Flows = Income Before Extraordinary Hems, Total Depreciation and Amentation K-Propony Plant and Equipment... - Market Capitalization, Total Shareholder's Equity Book Value of Comme Defamed Tax Assess, Total Shurcholder's Equity, Debt - Total Long Term Det Notes Payable, Current Portion of Long Term Debt, Iividends Total Cash Dividends Paid, (common and prefermed) and Casa Cash and Short-Term lovement, The ratio has been slightly modified by reducing the number of decimal place Your bank manager has asked you if it is possible to combine Alman2 and KZ index to permitind decisions whether a firm should have their loans approved for rejected. You have created the figure below High & Low Kaplanezigh & Hugh Kalisz Oudent Quadrat Lou Annan 2 Low Kaplan Zingales K2 Low Ahman 2 ligh Kalan-Zingales K2 Quadrant 3 Quadrant | Given the four quadrats (Quadranti so Quadrant) develop justifications for cither apposing or rejecting a loan from cach quatre Please ensure that you use the spaces provided in the next page for your answer. QUESTION 3 10 Marks (continued