The Sawmill Plans on Closing Its Doors After One More

question 2

Multiple Choice

The Sawmill plans on closing its doors after one more year.During its last year in business the firm expects to generate a cash flow of $74,000 if the economy booms and $57,000 if it does not.The probability of a boom is 15 percent.The firm has debt of $60,000 that is due in one year.That debt has a market value of $58,000 today.Ignore taxes.The current promised return on debt is ____ percent and the expected return on debt is ______ percent.

• A)3.78;-1.16
• B)3.45;-.95
• C)2.02;3.78
• D)3.45;2.67
• E)2.67;3.45

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