You are a financial analyst at Portland plc a commercial bank. Two companies Quest plc and Romer plc have approached Portland plc with requests for short term debt finance. Quest plc and Romer plc both wish to borrow 30 million for twelve months. The following summary information is available: Quest plc has total assets of 50m of which 6m comprise current assets. The companys total liabilities amount to 30m with negative working capital of 15m. This year the company reported a net loss of 11m in contrast to the profit of 5m last year and 4m the year before. Quest plcs flow of working capital from its operations was positive and equal to 1m. The appropriate GNP price index is 120. Romer plc reported net profits of 8m this year, 6m last year and 6m the year before. The companys total assets of 85m exceed its total liabilities by 40m. Its current assets are valued at 10m while the current liabilities amount to 9m. Romer plc generated a flow of working capital from operations of 5m. The appropriate GNP price index is 120. Portland plcs lending rate on twelve-month loans is 8% per annum. The risk-free rate of return is 3% per annum. On similar loans in the past Portland plc typically recovers 75% of the capital lent in the event of default. REQUIRED: a) Use Ohlsons (1980) logit model to estimate the probability of failure for Quest plc and Romer plc. The coefficients of the Ohlson model are as follows: Y = -1.32 -0.407*SIZE + 6.03*TL/TA 1.43*WC/TA + 0.0757*CL/CA 2.37*NI/TA 1.83*FUTL + 0.285*INTWO -1.72*OENEG -0.521*CHIN (10 marks) b) On the basis of your answer to part a) explain what recommendations you would make in response to the companies requests for debt finance. (2 marks) c) Give three examples of qualitative information you would request to support your analysis in a) above. Explain your reasoning. (3 marks) d) Using calculations based on the information provided above, illustrate the relevance of Type 1 and Type 2 errors in corporate failure prediction models. Explain how these costs can influence the design of such models? (5 marks) e) Accounting based corporate failure prediction models rely on data from financial statements. Evaluate the criticism that such models are limited in value because of the inherent weakness of financial reporting data. Explain your reasoning. (5 marks) (Total 25 marks)