CMA Final · Strategic Performance Management and Business Valuation · Corporate Failure
Under the Altman Z-score for manufacturing firms, a Z-score below which cut-off places a firm in the distress zone with a high probability of failure?
The distress cut-off is 1.81. A Z-score below 1.81 signals a high probability of failure, 1.81 to 2.99 is the grey zone, and above 2.99 is the safe zone in the original Altman model for listed manufacturers.
- A2.99
- B1.81Correct
- C1.10
- D0.60
Explanation
The original model classifies Z below 1.81 as distress, between 1.81 and 2.99 as grey, and above 2.99 as safe. The figure 2.99 is the upper boundary of the grey zone, not the distress cut-off.
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