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

question 89

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:

Attractive Harvest

A period or scenario where investments yield significantly profitable returns.

Merger

The combination of two or more companies into a single corporate entity, often to expand market reach, diversify, or achieve greater efficiency.

Acquisition

The process of obtaining control of another company or asset through purchase or merger.

Capital Gain

The profit realized from the sale of assets or investments when the selling price exceeds the purchase price.