Reference no: EM132909648
Southport Bank has received a loan application from one of its clients - 1A Construction Manufacturers Ltd. The bank has a two-stage approach for handling commercial loan applications. In the first stage, it has to decide whether the loan can be approved. In the second stage, the bank decides upon what interest rate to charge the borrower.
Using Altman's Linear Discriminant Model, calculate Altman's Z-score and state whether the loan should be approved
Assume the following ratios:
§ Market value of equity-to-book value of long-term debt ratio = 0.8,
§ Sales-to-total asset ratio = 1.7,
§ Earnings before interest and taxes-to-total asset ratio = 0.2,
§ Working capital-to-total assets ratio = 0.05.
§ Retained earnings-to-total asset ratio = 0.1,
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