DeBerg Funds prepared a table of bond ratings and financial ratios of 35 companies as given below. The table is sorted by EBIT/TA. You want to choose a cutoff value for EBIT/TA for DeBerg Funds so that they can rate firms with EBIT/TA greater than that value as A+ and firms with EBIT/TA less than that value as B. Assume that the cost of type I error - misclassifying a bad firm as a good firm is 3.5 times the cost of type II error - misclassifying a good firm as a bad firm.

What cutoff value for EBIT/TA minimizes the total cost of misclassifications? (only 1 correct answer). Company | Rating | EBIT/TA ----------------------------------------------------- VISTEON CORP | B | (0.0110) EASTMAN KODAK CO | B | 0.0260 GOODYEAR TIRE & RUBBER CO | B | 0.0630 UNITED STATES STEEL CORP | B | 0.0740 PENSKE AUTOMOTIVE GROUP INC | B | 0.0740 ONEOK INC | B | 0.0750 DEAN FOODS CO | B | 0.0830 DANAHER CORP | B | 0.0840 AES CORP | A | 0.0900 RRI ENERGY INC | A | 0.0960 LEAR CORP | B | 0.0970 QWEST COMMUNICATION INTL INC | A | 0.0980 BOEING CO | A | 0.1010 AMAZON.COM INC | A | 0.1020 TESORO CORP | B | 0.1220 PFIZER INC | A | 0.1270 MERCK & CO | A | 0.1300 BRISTOL-MYERS SQUIBB CO | A | 0.1360 ABBOTT LABORATORIES | A | 0.1400 KIMBERLY-CLARK CORP | A | 0.1500 WYETH | A | 0.1500 BAXTER INTERNATIONAL INC | A | 0.1550 AMGEN INC | A | 0.1580 DISH NETWORK CORP | B | 0.1600 DIRECTV GROUP INC | B | 0.1640 ILLINOIS TOOL WORKS | A | 0.1700 COCA-COLA CO | A | 0.1750 LILLY (ELI) & CO | A | 0.1800 UNITED PARCEL SERVICE INC | A | 0.1810 JOHNSON & JOHNSON | A | 0.1880 PEPSICO INC | A | 0.2110 The 3M CO | A | 0.2240 ECHOSTAR DBS CORP | B | 0.2350 NUCOR CORP | A | 0.2610 COLGATE-PALMOLIVE CO | A | 0.2940

		A) 0.0870
		B) 0.1245
		C) 0.0975
		D) 0.1670