Question: Suppose a linear probability model you have developed finds there are two factors influencing the past bankruptcy behavior of firms: the debt to equity ratio

Suppose 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 sales to total assets ratio. Based on past bankruptcy experience, the linear probability model is estimated as: PDi = .4 (debt/ equity) - .01 (sales/total assets). A firm you are thinking of lending to has a sales-to-assets ratio of 2.9 and it's expected probability of default, or bankruptcy is estimated to be 6.8 %. Calculate the firm's debit ratio

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