"Next year, the cash flow of Petra Industires will be $74M, with probability 0.8, or $24M, with probability 0.2. There will be no other cash flows. The firm has no debt but would like to borrow $28M for one year and pay the proceeds out as dividends. If it goes bankrupt it will incur $8M in bankruptcy costs. The cost of capital is 0. If the creditors are fully aware of the risks, what kind of promised return will they negotiate? "

14.3%

13.2%

10.7%

8.7%

7.5%