4- Imagine that we are using a Logit model to predict whether a firm will go...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
4- Imagine that we are using a Logit model to predict whether a firm will go bankrupt in the next 1 year. We used 3 independent variables: debt-to-asset ratio (leverage) i) ii) interest coverage ratio (icr) which is the ratio of income to interest expense. iii) Debt-to-earnings ratio (DE) Of course, we need to estimate the impact of these independent variables on bankruptcy probability, and we did that using R. Here are the estimated coefficients: coef. of leverage is 0.1, coef. of icr is 0.2, and coef. of DE is 0.3 and we estimated the intercept to be 0.4. Given all this information, what is the estimated probability of a firm going bankrupt in the next 1 year given the following statistics: leverage = 0.5, icr = 0.5, and DE=5. Just a number as an answer is not enough, you need to explain how you got that number. 4- Imagine that we are using a Logit model to predict whether a firm will go bankrupt in the next 1 year. We used 3 independent variables: debt-to-asset ratio (leverage) i) ii) interest coverage ratio (icr) which is the ratio of income to interest expense. iii) Debt-to-earnings ratio (DE) Of course, we need to estimate the impact of these independent variables on bankruptcy probability, and we did that using R. Here are the estimated coefficients: coef. of leverage is 0.1, coef. of icr is 0.2, and coef. of DE is 0.3 and we estimated the intercept to be 0.4. Given all this information, what is the estimated probability of a firm going bankrupt in the next 1 year given the following statistics: leverage = 0.5, icr = 0.5, and DE=5. Just a number as an answer is not enough, you need to explain how you got that number.
Expert Answer:
Answer rating: 100% (QA)
To estimate the probability of a firm going bankrupt in the next 1 year using the given logistic reg... View the full answer
Related Book For
Financial Accounting and Reporting a Global Perspective
ISBN: 978-1408076866
4th edition
Authors: Michel Lebas, Herve Stolowy, Yuan Ding
Posted Date:
Students also viewed these accounting questions
-
Managing Scope Changes Case Study Scope changes on a project can occur regardless of how well the project is planned or executed. Scope changes can be the result of something that was omitted during...
-
Planning is one of the most important management functions in any business. A front office managers first step in planning should involve determine the departments goals. Planning also includes...
-
The following additional information is available for the Dr. Ivan and Irene Incisor family from Chapters 1-5. Ivan's grandfather died and left a portfolio of municipal bonds. In 2012, they pay Ivan...
-
QUESTION 17 The moment of a force about a pivot point is; a. The force multiplied by the perpendicular distance fro the pivot point to the direction of the force b. the distance from the pivot to the...
-
Reconsider Prob. 781. Using EES (or other) software, study the effect of varying the surrounding medium temperature from 10 to 40C on the exit temperature and the total entropy change for this...
-
Sleepy Recliner Chairs completed the following selected transactions: 2011 Jul 1 Sold inventory to Go Mart, receiving a $37,000, nine-month, 8% note. Ignore cost of goods sold. Oct 31 Recorded...
-
Find the area to the right of 24.725 under the chi-square distribution with 11 degrees of freedom.
-
Comparative financial statements for Na Pali Coast Company for the years ending December 31, 20-1 and 20-2 are provided. REQUIRED 1. Perform horizontal analysis of the comparative income statement...
-
Complete the steps below using cell references to given data or previous calculations. In some cases, a simple cell reference is all you need. To copy / paste a formula across a row or down a column,...
-
Damon Manufacturing is preparing its master budget for the first quarter of the upcoming year. The following data pertain to Damon Manufacturing's operations: Current Assets as of December 31 (prior...
-
Following method that accepts a String as an argument. The method use recursion to display each individual character in the String. public static void main(String[] args) { } String str = "test...
-
Four initial conditions are necessary to determine the forced-vibration response of a fixed-free beam. Indicate whether the statement presented is true or false. If true, state why. If false, rewrite...
-
In which of the items in the previous exercise does cash change? Do shareholders happiness and cash move simultaneously (that is, shareholders are happy if cash increases and vice versa)? Previous...
-
Explain how shareholders feel (happy, sad, even) as far as these transactions are concerned: a. A brand-new machine is bought for cash and installed in the factory. b. That machine is depreciated at...
-
True or false? If inventory obsolescence is very high in a given year, FFO will most likely be larger than CGO.
-
Name a couple of industries that could potentially benefit from shifting focus the way Zara did.
-
A researcher is investigating the effect of hypnosis on remembering The deep hypnosis group created was 17 people and the light hypnosis group was 15 people. The mean of remembering details was 23...
-
San Carlos Bank and Trust Company uses a credit-scoring system to evaluate most consumer loans that amount to more than $2,500. The key factors used in its scoring system are found at the conclusion...
-
You will find below in Exhibits 1 and 2 the balance sheets and income statements from eight different companies.
-
Multiple Choice Questions 1. Which of the following statements is not correct? (a) A ratio reflects a business model relationship between two or more variables. (b) When using comparative ratio...
-
The Company Lalo Company, headquartered in Vaduz, is a company listed in Amsterdam, Paris and Zurich. It is the third largest small home appliance manufacturer in Europe. The company was founded in...
-
A simplified vibration analysis of an airplane considers bounce and pitch motions (Fig. 6.24(a)). For this, a model consisting of a rigid bar (corresponding to the body of the airplane) supported on...
-
Derive the equations of motion, using Newton's second law of motion, for each of the systems shown in Figs. 6.21. Pulley, mass M, mass moment of inertia Jo 3r 3m T x(1) F(t) 2k 000 T x2(1) m T X3(1)...
-
Derive the equations of motion, using Newton's second law of motion, for each of the systems shown in Figs. 6.22. M, cos wt G 15 G3 13 ka 03 4 kn 12 G k3 16 G6 G Number of teeth on gear G, n, (i = 1...
Study smarter with the SolutionInn App