A Linear Probability Model You Have Developed Finds There Are

question 71

Multiple Choice

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 = 0.02 (equity multiplier) + 0.06 (total asset turnover)
A firm has an equity multiplier of 1.1 times and a probability of default of 6.2 percent.Calculate the firm's total asset turnover ratio.

• A)0.53 times
• B)0.67 times
• C)1.2 times
• D)0.84 times