Tropical, Inc. has provided the following financial information in its application for a loan.

Assets Liabilities and Equity

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Cash $ 20 Accounts Payable $ 30

Accounts Receivables $ 90 Notes Payable $ 90

Inventory $ 90 Accruals $ 30

Long Term Debt $150

Plant and equipment $500 Equity $400

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Also assume sales = $500, cost of goods sold = $360, taxes = $56, interest payments = $40, net income = $44, the dividend payout ratio is 50%, and the market value of equity is equal to the book value.

What is the Altman discriminant function value for Tropical, Inc.? Recall that:

Net working capital = Current assets minus current liabilities.

Current assets = Cash + accounts receivable + inventories.

Current liabilities = Accounts payable + accruals + notes payable.

EBIT = Revenues - Cost of goods sold - depreciation.

Taxes = (EBIT - Interest) (tax rate).

Net income = EBIT - interest - taxes.

Retained earnings = Net income (1 - dividend payout ratio)

Altmans discriminant function is given by:

Z = 1.2X1+ 1.4X2 + 3.3X3 + 0.6X4 + 1.0X5

Assume prior retained earnings are zero.

X1= Working capital/total assets

X2 = Retained earnings/ total assets

X3 = EBIT/ total assets

X4 = Market value of equity/long term debt

X5 = Sales/ total assets