Globe Services plans on closing its doors after one more year. During its last year in business, the firm expects to generate a cash flow of $67,000 if the economy booms and $44,000 if it does not. The probability of a boom is 30 percent. The firm has debt of $53,400 that is due in one year. That debt has a market value of $45,800 today. Ignore taxes. The current promised return on debt is __________ percent, and the expected return on debt is __________ percent.

Answers:

1. 16.59; 4.98

2. 14.23; 4.98

3. 14.23; .67

4. 16.59; 2.23

5. 11.62; .67