3. This exercise relates to the bankruptcy-prediction problem discussed in this chapter. The bankruptcy-prediction problem can be viewed as a problem of classification.

The dataset you will be using for this problem includes five ratios that have been computed from the financial statements of real-world firms. These five ratios have been used in studies involving bankruptcy prediction.

The first sample includes data on firms that went bankrupt and firms that didn’t. This will be your training sample for the neural network. The second sample of 10 firms also consists of some bankrupt firms and some nonbankrupt firms. Your goal is to train a neural network, using the first 20 data, and then test its performance on the other 10 data. (Try to analyze the new cases yourself manually before you run the neural network and see how well you do.) The following tables show the training sample and test data you should use for this exercise.

Describe the results of the neural network prediction, including software, architecture, and training information.
Submit the trained network file(s) so that your instructor can load and test your network.

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Training Sample Firm WC/TA RE/TA EBIT/TA MVE/TD S/TA BR/NB 1 0.1650 0.1192 0.2035 0.8130 1.6702 1 2 0.1415 0.3868 0.0681 0.5755 1.0579 1 3 0.5804 0.3331 0.0810 1.1964 1.3572 1 st 4 0.2304 0.2960 0.1225 0.4102 3.0809 1 669 0.3684 0.3913 0.0524 0.1658 1.1533 0.1527 0.3344 0.0783 0.7736 1.5046 1 7 0.1126 0.3071 0.0839 1.3429 1.5736