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84. 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 profit margin. Based on past
bankruptcy experience, the linear probability model is estimated as:
PDi = 0.013 (debt/equity) + 0.78 (profit margin)
A firm you are thinking of lending to has a debt-to-equity ratio of 112 percent and its expected
probability of default, or bankruptcy, is estimated to be 15.35 percent. If sales are $1.55 million,
calculate the firm's net income.
85. A merger between BankOne and Amcore is an example of a:
86. The main motive for a merger is:
87. Which of the following is NOT a source of value-enhancing synergy in a merger?
88. If Walt Disney and American Airlines merged, it would be an example of a:
89. Which of the following is NOT an example of a revenue enhancement that is a result of a
merger?
90. The merged firm's ability to generate synergistic cost savings through the joint use of
inputs in producing multiple products is referred to as:
91. Cost savings not directly due to economies of scope or economies of scale are referred to
as:
92. Which of the following refers to a firm that is still allowed to continue to operate while the
creditors' claims are settled using a collective procedure?
93. Which of the following is an incorrect priority of claims in the event of liquidation? (Note:
The first item would be paid first.)
94. All of the following are an advantage of prepackaged bankruptcy EXCEPT:
95. All of the following are problems associated with using the
Z
-score model to make credit
risk evaluations EXCEPT:
96. Which of the following statements is incorrect?
97. If Walmart acquires Target, this would be an example of a:
98. If Verizon buys the Green Bay Packers, this would be an example of a:
99. If Whole Foods grocery store buys Whole Wheat Bread, this would be an example of a:
100. Which of the following is a poor justification for a merger?
101. LD Inc. declared bankruptcy through a Chapter 7 filing. Consider the following data in
millions of dollars and determine the funds available for secured creditors.
• Proceeds from the liquidation of assets = $395
• First mortgage = $100
• Administration expenses associated with the bankruptcy = $2
• Notes payable to the banks = $205
• Subordinated debentures = $350
• Taxes due to federal, state, and other governmental agencies = $12
• Wages due employees (1,000 employees) = $3
102. LD Inc. declared bankruptcy through a Chapter 7 filing. Consider the following data in
millions of dollars and determine the funds available for secured creditors.
• Proceeds from the liquidation of assets = $395
• First mortgage = $102
• Administration expenses associated with the bankruptcy = $5
• Notes payable to the banks = $205
• Subordinated debentures = $350
• Taxes due to federal, state, and other governmental agencies = $17
• Wages due employees (2,000 employees) = $6
