Miller Tool Plans on Closing Its Doors After One More

question 54

Multiple Choice

Miller Tool plans on closing its doors after one more year.During its last year in business the firm expects to generate a cash flow of $89,000 if the economy booms and $61,000 if it does not.The probability of a boom is 30 percent.The firm has debt of $65,000 that is due in one year.That debt has a market value of $57,000 today.Ignore taxes.The current promised return on debt is ____ percent and the expected return on debt is ______ percent.

• A)9.12;14.04
• B)11.18;14.04
• C)11.18;9.12
• D)14.04;9.12
• E)14.04;11.18

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Definitions:

Adjustment

The process of making modifications to financial records or accounts to ensure their accuracy and compliance with accounting principles.

Income Statement Approach

A method of estimating certain account balances within an income statement, focusing on revenues and expenses to indirectly calculate other figures.

Allowance for Doubtful Accounts

A contra-asset account that reduces the total amount of accounts receivable to reflect those that are expected to go uncollected.