Calculate the firm profit margin

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Suppose a linear probability model you have developed finds there are two factors influencing the past bankruptcy behavior of firms: the debt ratio and the profit margin. Based on past bankruptcy experience, the linear probability model is estimated as:

PDi = 0.18 (debt ratio) + 0.35 (profit margin)

You know a particular firm has a debt ratio of 35 percent and a probability of default of 8 percent. Calculate the firm's profit margin.

Reference no: EM132796006

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