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

question 77

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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