Z-Score Model Exercise: The following financial information was provided by ABC in its application for a loan (info. in US $000's).

Cash	$ 20	Accounts payable	$ 30
Accounts receivable	$ 90	Loans to Accounts Payable	$ 90
Inventories	$ 90	Accumulated (“Accruals”)	$ 30
		Long term debt	$150
Plant & Equipment	$500	Capital (Ret. Profit = $0)	$400
TOTAL Assets	$700	TOTAL Liabilities and Capital	$700

Also, the following information is relevant:

Sales = $500,000

Cost of goods sold = $360,000

Taxes = $56,000

Interest payments = $40,000

Net Income = $44,000

Dividends = 50%

Capital Market Value = Book Value…

Using the above information, answer the following questions:

1.- If ABC's Sales were $300,000, the market value of its principal only half of its book value and Cost of goods sold, interest payments and the tax rate remain the same, what would ABC's net profit be? You can assume that the tax credit could be used to lower tax payments in other divisions of the company. Would this change your decision to grant or not credit?

Answer rating: 100% (QA)

To answer the question we need to calculate ABCs net profit using the given information and then adj... View the full answer