• Use Model 2 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 2: For privately-held companies
Z' = 0.717X1 + 0.847X2 + 3.107X3 + 0.420X4 + 0.998X5
		X1 = Net Working Capital/Total Assets
		X2 = Retained Earnings/Total Assets
		X3 = EBIT/Total Assets
		X4 = Book Value of All Assets/Book Value of Total Liabilities
		X5 = Sales/Total Assets
. If Z' < 1.21 => Bankruptcy is predicted within one year
. If 1.23 < Z' < 2.90 => Financial distress, possible bankruptcy
. If Z' > 2.90 => No Financial distress predicted
Note: The predictive ability of the model was even better when using a cutoff point of 1.81.

Referring to the financial statements below, apply the Altman's Z-score model 1
to predict ZINGA LINK's likelihood of financial distress. Interpret your results, including a comment on
the change between 2016 and 2017.

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%