Homework answers / question archive / Question 3 Corporate Failure Prediction Models) Georgia Limited is a manufacturer of roofing tiles

Question 3 Corporate Failure Prediction Models) Georgia Limited is a manufacturer of roofing tiles

Finance

Share With

Question 3 Corporate Failure Prediction Models) Georgia Limited is a manufacturer of roofing tiles. Extract of Financial Statements are as follows: Income Statement for the year ended 31 December 2019 GH Turnover 32,000 Cost of sales (13,500) Gross profit 18,500 Selling and administration expenses (8,300) Interest charges (4,300) Profit before tax 5,900 Tax (2,700) Net profit 3,200 Statement of Financial Position as at 31 December 2019 GHe Non-current assets Buildings Plant & equipment Investment Total non-current assets 15,000 11,640 5,160 31,800 Current assets Stocks Debtors Bank Total current assets Total assets 7,800 3,200 4,600 15,600 47,400 Equity capital Ordinary shares Share premium Capital surplus Income surplus Total equity capital 10,000 2,500 7,800 10,200 30,500 Current liabilities Tax payable Creditors Total current liabilities 3,000 4,400 7,400 Non-current liabilities Long term loan Total non-current liabilities Equity plus liabilities 9,500 9,500 47,400 Page 3 of 4
Additional information Georgia Limited has issued share capital of 40,000 shares at a nominal value of GH¢0.25 per share. These shares are now selling on the stock exchange for GH¢0.10 per share. Required (a) Using Altman's corporate failure prediction model, determine whether Georgia Limited is in danger of collapse in the near future. [10 Marks) (b) Discuss the validity of Altman's Z-Score model and outline the justifications for use of the model. [5 Marks] (c) Outline the elements of Argenti's corporate failure prediction model [5 Marks (d) Discuss the relevance Argenti's corporate failure prediction model in managing corporate entities. [5 Marks] [Total of 25 Marks)