A linear probability model you have developed finds there are two factors influencing the past bankruptcy behavior of firms: the equity multiplier and the total asset turnover ratio. Based on past bankruptcy experience, the linear probability model is estimated as: PD_i = 0.04 (equity multiplier) + 0.01 (total asset turnover) A firm has an equity multiplier of 1.5 times and a probability of default of 7 percent. Calculate the firm's total asset turnover ratio.

Multiple Choice

• 1.0

• 4.5

• 0.01

• 2.0