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

question 1

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.
What is the Z-score if the debt to asset ratio is 40 percent, net income is 12 percent, and the dividend payout ratio is 60 percent?

• A)1.59.
• B)1.48.
• C)1.36.
• D)1.28.
• E)1.20.

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Definitions:

GAAP

GAAP, or Generally Accepted Accounting Principles, are a set of rules and standards designed to improve the clarity, consistency, and comparability of the communication of financial information.

Departmental Overhead Rate

A measure used to allocate overhead costs to individual departments based on certain criteria, like direct labor hours.

Cost Object

Any item for which cost is measured and assigned, such as products, services, or departments.

Plantwide Overhead Rate

A single overhead rate calculated for an entire manufacturing plant, used to allocate overhead costs to products.