Exercise #5 - Credit Scoring - Linear Discriminant Modeling (Altman) Suppose the financial ratios of a potential borrower are below. What is the probability of default? Should you make the loan? Xi - 2 X2=0 X3 = -2 X4=.1 X = 2 (Working Capital/Total Assets) reasonable liquidity (Retained Earnings/Total Assets) past losses (EBIT/Total Assets) unprofitable (Market Value Equity/Book Value LT Debt) leveraged (Sales/Total Assets) maintaining sales levels Z=1.2X + 1.4X2 +3.3X3 +0.6X. + 1.OX