Using a Modified Discriminant Function Similar to Altman's, Burger Bank

Using a modified discriminant function similar to Altman's, Burger Bank estimates the following coefficients for its portfolio of loans:
Z = 1.4X₁ + 1.09X₂ + 1.5X₃
where X₁ = debt to asset ratio; X₂= net income and X₃ = dividend payout ratio.
-Using Z = 1.682 as the cut-off rate, what should be the debt to asset ratio of the firm in order for the bank to approve the loan?

A) 40.0 percent.
B) 46.5 percent.
C) 51.5 percent.
D) 54.0 percent.
E) 65.0 percent.

Correct Answer:

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