Why Choose Us?
0% AI Guarantee
Human-written only.
24/7 Support
Anytime, anywhere.
Plagiarism Free
100% Original.
Expert Tutors
Masters & PhDs.
100% Confidential
Your privacy matters.
On-Time Delivery
Never miss a deadline.
As a senior loan officer at National Capital Bank, you have the following loan application waiting for review
As a senior loan officer at National Capital Bank, you have the following loan application waiting for review. The bank uses Altman’s Z-score to assess loan acceptability. The bank’s cost of equity is 9 per cent.
An AA-rated, one-year business loan from a firm with the following financial statement information (in millions of dollars):
|
Assets |
Liabilities and Equity |
|||
|
Cash |
$ 40 |
Accounts payable |
$ 55 |
|
|
Accounts receivables |
120 |
Notes payable |
60 |
|
|
Inventory |
100 |
Accruals |
70 |
|
|
Long-term debt |
650 |
|||
|
Plant and equipment |
1210 |
Equity (ret. earnings = $200) |
635 |
|
|
Total assets |
$1 470 |
Total liabilities and equity |
$1 470 |
|
Also assume sales = $1250 million, cost of goods sold = $1100 million, and the market value of equity is equal to 2.0 times the book value. National Capital Bank uses the Altman’s Z-score model to evaluate AA-rated loans.
(a) What is the Altman discriminant function value for the loan applicant? (4 marks)
(b) Should you approve the application to your bank for a capital expansion loan? (1 mark)
Expert Solution
Altman Z- Score is calculated to identify the Companies financial position for Obtaining financial assistance from banks.
If any company having Altman Score-Z more than 3 then the financial condition of such company is strong and bank should provide the loan to such companies.
If any company having Altman Score-Z less than 1.8 than it is assumed that the financial position is not strong for such companies and bank should not provide any loan assistance to such companies.
If the score is between 1.8 and 3 then the bank is indifferent on such cases and in such cases bank should properly analyse the market position , market strategy, market share of such companies before providing any loan assistance.
Please use this google drive link to download the answer file.
https://drive.google.com/file/d/1jMfwSUga_eP5MQciJD2PoHcJEEj1YlRU/view?usp=sharing
Note: If you have any trouble in viewing/downloading the answer from the given link, please use this below guide to understand the whole process.
https://helpinhomework.org/blog/how-to-obtain-answer-through-google-drive-link
Archived Solution
You have full access to this solution. To save a copy with all formatting and attachments, use the button below.
For ready-to-submit work, please order a fresh solution below.
