QUESTION 1 Default risk is a. The probability a firm will miss cash payments of interest and principal when due b. The probability a firm willl not issue the SEC 10-K when due c. The probability of bankruptcy d. The probability a firm will be acquired by another firm QUESTION 2 The following information is given for Texaco for 2000 (in millions): Texaco's Bond Ratings Altman's Z-score Model $7,053 6.56 x working capital /total assets 3.26 x retained Moody's: Aa Total current assets Standard & Poors': AA Total current liabilities 5,984 earnings/total assets 6.72 x EBIT total Total assets 30,867 assets 1.05 x BV of equity / Retained earnings 11,297 BV of debt Earnings before tax = Z-score 4,218 Interest expense 458 Failing: below 1.1 Total stockholders' equity 13,444 Gray: 1.1-2.6 Total liabilities 17,423 Healthy: above 2.6 Altman's working capital Z-score calculation is: a. 2.857 b..035 c. .436 d. .227