Question 17.2: Using the credit-Scoring Model

STEP 1: Formulate a Solution Strategy

To see how the credit-scoring model is used, let’s consider the credit application of Jamison Electric Corporation. Column D contains the products of the credit-scoring model coefficients found in column B and Jamison’s financial attributes found in column C.

Product = coefficient × firm value

Sum of the products = credit score

STEP 2: Crunch the Numbers

0.33 + 0.85 + 0.24 + 0.28 + 0.30 = 2.00

STEP 3: Analyze Your Results

Adding up all the individual product terms produces a credit score of 2.00. Because this credit score is less than 2.7, we would anticipate that there is a high likelihood that Jamison will become bankrupt sometime during the coming year.²