Calculation of Bankruptcy Probability a Linear Probability Model You Have

question 19

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 = 0.04 (equity multiplier) + 0.01 (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)0.01
• D)2.0

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Definitions:

Intervertebral Disk

A layer of cartilage separating adjacent vertebrae in the spine, functioning as a shock absorber and allowing flexibility and movement.

Thoracic Region

The portion of the body's trunk located between the neck and the abdomen, housing the chest organs including the heart and lungs.

Vertebra

One of the individual bones that make up the vertebral column (spine), providing structural support and protecting the spinal cord.

Pelvic Girdle

Site of attachment of the lower limb to the trunk; ring of bone formed by the sacrum and the coxal bones.