Use the following financial statements to answer questions (a) to (c): iABC Ltd Balance Sheet (in millions
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Question:
Use the following financial statements to answer questions (a) to (c):
iABC Ltd Balance Sheet (in millions of dollars) | |||
Assets | Liabilities | ||
Cash | $400 | Accounts Payable | $300 |
Accounts Receivables | 1,750 | Accrued Taxes | 200 |
Inventories | 1,250 | Bills Payable | 900 |
Fixed Assets | 5,000 | Long-term debt | 3,000 |
Equity | 4,000 | ||
Total | $8,400 | Total | $8,400 |
iABC Ltd Income Statement (in millions of dollars) | |
Sales Revenue | $5,000 |
Cost of Goods Sold | 3,500 |
Interest | 1,500 |
Taxes @ 30% |
Consider the Altman's Z-score.
Where WC = Working Capital, TA = Total Assets, RE = Retained Earnings,
MVE= Market Value of Equity and BVLTD = Book Value of Long-Term Debt.
QUESTION 3a)Evaluate Altman's discriminant function for iABC Ltd if the firm pays tax at 30%, has a 45% dividend payout ratio and the market value of equity is equal to the book value.
QUESTION 3b [3 Marks]
- Should you approve iABC Ltd's application to your bank for $3,000,000 for a capital expansion loan? Justify your answer.
QUESTION 3c [4 Marks]
- What is the critical variable in the Altman's Z-score for iABC Ltd? What is underlying this variable? Justify your answer.
Related Book For
Contemporary Financial Management
ISBN: 9780324289114
10th Edition
Authors: James R Mcguigan, R Charles Moyer, William J Kretlow
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