The Sawmill Expects to Generate a Cash Flow of $59,000

Multiple Choice

The Sawmill expects to generate a cash flow of $59,000 next year if the economy booms and $46,000 if it does not.The probability of a boom is 20 percent.The firm has debt of $52,000 that is due in 1 year and has a current market value of $48,700.The firm plans to close after this coming year.The current promised pretax return on debt is ________ percent,and the expected pretax return on debt is ________ percent.

A) 6.78; 1.16
B) 6.78; -3.08
C) 5.49; 1.16
D) 5.49; -2.67
E) 6.27; -3.08