Calculation of Bankruptcy Probability Suppose a Linear Probability Model You

question 101

Multiple Choice

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: PD_i = .23 (debt ratio) + .08 (profit margin)
A firm you are thinking of lending to has a debt ratio of 60 percent and a profit margin of 12 percent. Calculate the firm's expected probability of default, or bankruptcy.

• A) 14.76%
• B) 22.32%
• C) 10.30%
• D) 13.25%

Justify the use of NPV as the "best" decision rule in principle for project evaluation.

Understand the concepts and tools of quality management.

Identify different types of control charts and their application.

Recognize the importance and method of sorting issues through Pareto analysis.

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Definitions:

Odd Pricing

A pricing strategy that sets prices at odd numbers just below round numbers to make them appear smaller and more appealing to buyers.

Cost-Based Pricing

Formulas that calculate total costs per unit and then add markups to cover overhead costs and generate profits.

Personal Selling

A direct form of marketing that involves a salesperson presenting the benefits of a product directly to a customer in order to make a sale.