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Calculation of Bankruptcy Probability Suppose a linear probability model you have developed finds there are two factors influencing the past bankruptcy behavior of firms: the debt ratio and the profit margin. Based on past bankruptcy experience, the linear probability model is estimated as: PDi = .25 (debt ratio) + .12 (profit margin)
A firm you are thinking of lending to has a debt ratio of 62 percent and a profit margin of 14 percent. Calculate the firm's expected probability of default, or bankruptcy.
Shareholders
Owners of shares in a corporation, holding a portion of the business's stock, and therefore having rights to dividends and a say in company matters.
Corporation
A legal entity recognized by law as separate from its owners, with its own rights, privileges, and liabilities.
S Corporation Election
A tax status election made by a corporation with the Internal Revenue Service to be taxed as a pass-through entity, avoiding double taxation on corporate income.
Shareholders' Consent
The approval or agreement by shareholders, often required for major company decisions, typically obtained through voting mechanisms.
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