Answer Happy

Question 25 (15 marks) You are a Credit Officer at Capital Two Bank Ltd and Zebron Ltd has applied for a loan of $1,500,000. Miss Lee, your trainee Credit Analyst has assessed the application and has partially computed the Altman Z-score for the last three years and has presented you with the following:- 2018 Z-Score - X1+X2+X3+X5 =2.4426 2017 Z-Score = X1+X2+X3+X5 =1.8596 2016 Z-Score = X1+X2+X3+X5 =1.3218 She has also presented you with the following additional data on Zebron Ltd 31/12/2018 31/12/2017 31/12/2016 $,000 9,000 $,000 3384 3192 4152 Total Liabilities Shareholders' equity: Common stock ($0.1 par value) - Authorized 4,000,000 shares - Issued and outstanding, 3,500,000 shares. 350 350 350 2,415 Paid-in capital in excess of par Retained earnings Total Shareholders' equity 2,415 1.222 3987 241 2,415 180 2945 3006 Market price for each share of Zebron's common stock was as follows: January 3, 2018 - $1.25: December 31, 2018 - $1.14 January 3, 2017- $1.10; December 31, 2017 - $0.86 January 3, 2016- $0.40; December 31, 2016 - $0.55 6 a) Complete the computation of the Z score for each of the three years. (6 Marks) b) Comment on the individual Z score for each year as it relates to a lending decision for Zebron Ltd (6 marks) c) Use Altman Z-Score for all three years to decide whether or not you would approve Zebron's loan application (3 marks)