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Use Model 1 in the posted accompanying Excel spreadsheet to predict the probability of financial distress and possibly bankruptcy for ZINGA LINK, assuming ZINGA LINK
- Use Model 1 in the posted accompanying Excel spreadsheet to predict the probability of financial distress and possibly bankruptcy for ZINGA LINK, assuming ZINGA LINK is a public company.
- To decide whether ZINGA LINK will experience financial distress or not, refer to the proposed cutoff points, which are part of the models presented on page 1 of the spreadsheet. (Also see posted sample spreadsheet)
- Based on the results you obtained, assign a likely Credit Rating, per Standard & Poors or Moodys classification
- Note that the Altmans variable X1 involves Net Working Capital that equals Current Assets less Current Liabilities, which you should calculate from the balance sheet for each year. For variable X4, please use the Book Value of All Assets as a proxy for Market Value of All Assets.
Model 1 (Original): For publicly-held companies | ||||
Z = 1.2X1 + 1.4X2 + 3.3X3 + 0.6X4 + 1X5 | X1 = Net Working Capital/Total Assets | |||
X2 = Retained Earnings/Total Assets | ||||
X3 = EBIT/Total Assets | ||||
X4 = Market Value of All Assets/Book Value of Total Liabilities | ||||
X5 = Sales/Total Assets | ||||
Note: Use "Book Value" as proxy for "Market Value". Example: for X4 you'd use Book Value of All Assets. | ||||
Z* = Cutoff point = 2.675 | ||||
. If Z < 2.675 => Firm can be reasonably be expected to experience severe financial distress, and | ||||
possibly bankruptcy, within the next year. | ||||
. If Z > 2.675 => No financial distress predicted. | ||||
. If Z < 1.81 => Firm can be reasonably be expected to experience severe financial distress, and | ||||
possibly bankruptcy, within one year. | ||||
. If 1.81 < Z < 2.675 => Financial distress and possible bankruptcy. | ||||
. If Z > 2.675 => No financial distress predicted. | ||||
Note: Model was found 80-90% accurate when using a cutoff point of 2.675 |
ZINGA LINK Products, Inc. | |||
Balance Sheet, As of December 31, 2017 | |||
Assets | 2017 | 2016 | |
Cash and Equivalents | 52,000 | 57,600 | |
Accounts Receivable | 402,000 | 351,200 | |
Inventory | 836,000 | 715,200 | |
Total Current Assets | 1,290,000 | 1,124,000 | |
Plant & Equipment | 527,000 | 491,000 | |
Accumulated Depreciation | 166,200 | 146,200 | |
Net Fixed Assets | 360,800 | 344,800 | |
Total Assets | 1,650,800 | 1,468,800 | |
Liabilities and Owner's Equity | |||
Accounts Payable | 175,200 | 145,600 | |
Short-term Notes Payable | 225,000 | 200,000 | |
Other Current Liabilities | 140,000 | 136,000 | |
Total Current Liabilities | 540,200 | 481,600 | |
Long-term Debt | 424,612 | 323,432 | |
Total Liabilities | 964,812 | 805,032 | |
Common Stock | 460,000 | 460,000 | |
Retained Earnings | 225,988 | 203,768 | |
Total Shareholder's Equity | 685,988 | 663,768 | |
Total Liabilities and Owner's Equity | 1,650,800 | 1,468,800 | |
ZINGA LINK Products, Inc. | |||
Income Statement, For the Year Ended December 31, 2017 ($ in 000's) | |||
2017 | 2016 | ||
Sales | 3,850.00 | 3,432.00 | |
Cost of Goods Sold | 3,250.00 | 2,864.00 | |
Gross Profit | 600.00 | 568.00 | |
Selling and G&A Expenses | 330.30 | 240.00 | |
Fixed Expenses | 100.00 | 100.00 | |
Depreciation Expense | 20.00 | 18.90 | |
EBIT | 149.70 | 209.10 | |
Interest Expense | 76.00 | 62.50 | |
Earnings Before Taxes | 73.70 | 146.60 | |
Taxes | 29.48 | 58.64 | |
Net Income | 44.22 | 87.96 | |
Notes: | |||
Tax Rate | 40% |
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