Question: The following data are presented for Zero Company. Working capital $ 60,000 Total assets 400,000 Retained earnings 20,000 Earnings before interest and taxes 40,000 Market

The following data are presented for Zero Company.

Working capital $ 60,000

Total assets 400,000

Retained earnings 20,000

Earnings before interest and taxes 40,000

Market value of equity 80,000

Book value of total debt 200,000

Sales 300,000

Z score formula: Z = .012X1 + .014X2 + .033X3 + .006X4 + .010X5

X1 = Working Capital/Total Assets

X2 = Retained Earnings (balance sheet)/Total Assets

X3 = Earnings Before Interest and Taxes/Total Assets

X4 = Market Value of Equity/Book Value of Total Debt

X5 = Sales/Total Assets

Required:

a. Compute the Z score for Zero Company.

b. Considering the Altman model, comment on the likelihood that this firm will experience financial failure.

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