Calculation of Bankruptcy Probability a Linear Probability Model You Have

question 83

Multiple Choice

Calculation of Bankruptcy Probability 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 = .04 (equity multiplier) + .01 (total asset turnover)
A firm has an equity multiplier of 1.5 times and a probability of default of 7 percent. Calculate the firm's total asset turnover ratio.

• A) 1.0
• B) 4.5
• C) .01
• D) 2.0

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Definitions:

Augustus

The first Roman emperor, ruling from 27 BC until his death in AD 14, known for initiating the Pax Romana and significant cultural and political reforms.

Emperor Cult

The practice of worshiping emperors as gods, which was common in Roman and other ancient civilizations.

Pax Augusta

A term referring to the peace within the Roman Empire under Emperor Augustus, also known as Pax Romana, that lasted from 27 BCE to 180 CE.

Ara Pacis Augustae

An altar in Rome dedicated to Pax, the Roman goddess of peace, commissioned by the Senate to honor Augustus' return and known for its intricate relief sculptures depicting Roman virtues and imperial processions.