Calculating the Probability of Bankruptcy a Linear Probability Model You

question 15

Multiple Choice

Calculating the Probability of Bankruptcy 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:
PD_i = 0.02 (debt/equity) + 0.80 (profit margin)
A firm you are thinking of lending to has a debt-to-equity ratio of 110 percent and its expected probability of default,or bankruptcy,is estimated to be 8 percent.If sales are $2 million,calculate the firm's net income.

• A)$145,000
• B)$165,000
• C)$160,000
• D)$200,000

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Actions that harm or lack consideration for the well-being of others, often violating social norms or laws.

Criminal Behaviors

Actions that violate laws, for which responsible parties may be subjected to criminal sanctions.

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Illegal or antisocial behaviors committed by individuals under the age of 18.

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