Use the following data: ROA = 10%; Total liabilities = 90% of assets; EBITDA = 10% of liabilities.Calculate the relative chance of failure using the following model: Log(relative chance of failure)= -6.445 - 1.192 ROA + 2.307 (liabilities/assets)- 0.346(EBITDA/liabilities).

Question

Quizplus · Accepted Answer

We can plug in the given values to calculate the logarithm of relative chance of failure:

Log(relative chance of failure) = -6.445 - 1.192(0.1) + 2.307(0.9) - 0.346(0.1/0.9) 
Log(relative chance of failure) = -4.068

To find the relative chance of failure, we need to take the antilog of -4.068:

Relative chance of failure = 0.0109 or 1.09%

Therefore, the best choice is B) 1.09%.

Use the Following Data: ROA = 10%; Total Liabilities =