A Linear Probability Model You Have Developed Finds There Are

question 59

Multiple Choice

A linear probability model you have developed finds there are two factors influencing the past bankruptcy behavior of firms: the equity multiplier and the total asset turnover ratio. Based on past bankruptcy experience, the linear probability model is estimated as:
PD_i = 0.02 (equity multiplier) + 0.01 (total asset turnover)
A firm you are thinking of lending to has an equity multiplier of 3.2 times and a total asset turnover ratio of 1.95. Calculate the firm's expected probability of default, or bankruptcy.

• A) 7.06 percent
• B) 7.92 percent
• C) 8.35 percent
• D) 9.12 percent

Comprehend the principles of contract rescission and the specific conditions under which it is available or not.

Understand the concept of privity of contract and its implications for third parties.

Grasp the legal doctrine of the parol evidence rule and its exceptions.

Recognize the significance and outcomes of statutory vs. equitable assignments.

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Definitions:

Financing

The process or means of providing funds for business activities, making purchases, or investing.

Purchase Assets

The act of acquiring property, equipment, or other valuable items that are expected to generate revenue or appreciate in value over time.

Mutual Fund

An investment program funded by shareholders that trades in diversified holdings and is professionally managed.

C Corporations

A legal structure for a corporation in which the owners, or shareholders, are taxed separately from the entity.