Using a Modified Discriminant Function Similar to Altman's, Burger Bank

question 23

Multiple Choice

Using a modified discriminant function similar to Altman's, Burger Bank estimates the following coefficients for its portfolio of loans: Z = 1.4X₁ + 1.09X₂ + 1.5X₃

where X₁ = debt to asset ratio; X₂ = net income and X₃ = dividend payout ratio.
Using Z = 1.682 as the cut-off rate, what should be the debt to asset ratio of the firm in order for the bank to approve the loan?

• A)40.0 percent.
• B)46.5 percent.
• C)51.5 percent.
• D)54.0 percent.
• E)65.0 percent.

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Definitions:

Financing Statement

A document filed by a creditor to indicate a security interest in the property of a debtor, used in securing loan agreements.

Perfection

In legal and finance contexts, the act of securing a priority interest in collateral to protect a secured loan or transaction.

Certificate of Deposit

A savings certificate entitling the bearer to receive interest, which has a fixed maturity date, and typically restricts withdrawal of funds before that date.

Breached the Peace

Breaching the peace refers to causing a disturbance or acting in a manner that disrupts public order or tranquility, often leading to legal penalties.