Use Altmans discriminant function (the Z-Score model) to determine whether to grant credit to Nova Enviro Inc., where:

Balance Sheet (in thousands $)

Assets Liabilities

Cash 150 Notes payable 70 Accounts receivable 350 Debt (long term) 830 Plant and equipment 800 Contributed capital 200 Land 200 Retained earnings 400 Total assets 1,500 1,500

Income Statement (in thousands $)

Sales 1,750

Cost of goods sold 1,025

Depreciation 128

Interest expense 122

Taxes 245

Net income 230

Notes: Nova Enviro pays 50% dividends. Equity is currently

selling at 180% of its book value.

a) What is the market value of equity?

b) Calculate Nova Enviros Z score. Should their loan application be approved? (Note: Keep 3 decimals for your results of Xs; 2 decimals for Z)

c) If you ever decide to grant the loan, what interest rate would you charge on the loan? Assume: The collateral (C) is 55% of the repayment obligation, and time value of money (i.e. risk-free rate) is 2.5%.

(Note: Keep 4 decimals for probability and interest rate)