The following data are presented for Zero Company.
Working capital $ 60,000
Total assets 400,000
Retained earnings 20,000
Earnings before interest and taxes 40,000
Market value of equity 80,000
Book value of total debt 200,000
Sales 300,000
Z score formula: Z = .012X1 + .014X2 + .033X3 + .006X4 + .010X5
X1 = Working Capital/Total Assets
X2 = Retained Earnings (balance sheet)/Total Assets
X3 = Earnings Before Interest and Taxes/Total Assets
X4 = Market Value of Equity/Book Value of Total Debt
X5 = Sales/Total Assets
Required:
a. Compute the Z score for Zero Company.
b. Considering the Altman model, comment on the likelihood that this firm will experience financial failure.