Concept explainers
Altman’s z-score Altman’s z-score is a financial tool for predicting insolvency in a business.
For a certain company, the z-score formula is
In this exercise, we assume that thre are 45, 000 outstanding shares at a price of $4.80 each.
a. Use L, for total liability, in dollard, and give a formula for the z-score for this company.
b. Would a larger total liability idicate a better or worese outlook for the company?
c. A z-score of 1.81 or lower indicates a high probability of insolvency. What is the
smallest value of L that will give a z-score that indicates a high probability on insolvency?
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Chapter 2 Solutions
EBK FUNCTIONS AND CHANGE: A MODELING AP
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