Question 1 Use Altman's Z-Score model to determine whether to grant a loan to Nova Chang Inc. The borrowing firm has provided you its CURRENT year's financial statements as follows: Balance Sheet (in thousands $) Assets Liabilities Cash 75 Notes payable 55 Accounts receivable 300 Debt (long term) 960 Plant and equipment 1,000 Contributed capital 260 Land _300 Retained earnings 400 Total assets 1,675 1,675 Income Statement (in thousands $) Sales 2,110 Cost of goods sold 1,560 Depreciation 150 Interest expense 67 Taxes 133 Net income 200 Notes: Nova Chang pays 50% dividend, and its Equity is currently selling at 120% of its book value. a) What was the borrowing firm's retained earnings of LAST year? b) What is the market value of its equity? c) Calculate Nova Chang's Z-score. Should its loan application be approved? d) If you ever decide to grant the loan, what interest rate would you charge on the loan? Assume: The recovery is 40% of the repayment obligation, and discount rate is 2%