A Linear Probability Model You Have Developed Finds There Are

question 48

Multiple Choice

A linear probability model you have developed finds there are two factors influencing the past bankruptcy behavior of firms: the debt-to-equity ratio and the profit margin. Based on past bankruptcy experience, the linear probability model is estimated as: PDi = .013 (debt/equity) + .78 (profit margin)
A firm you are thinking of lending to has a debt-to-equity ratio of 112 percent and its expected probability of default, or bankruptcy, is estimated to be 15.35 percent. If sales are $1.55 million, calculate the firm's net income.

• A) $276,100
• B) $290,700
• C) $196,200
• D) $299,400

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Definitions:

Rock Characteristics

The inherent properties of rock, including mineral composition, grain size, texture, hardness, and color, which differentiate one rock type from another.

Wind

The movement of air from areas of high pressure to areas of low pressure, resulting in weather patterns and climatic changes on Earth.

Sand Deposition

The process by which sand is laid down or deposited by wind, water, or ice, often forming beaches, dunes, and other geological structures.

Turbidity Currents

Underwater density flows of sediment-laden water moving downslope, often triggered by earthquakes.