Corporate project is 75% like risk-free debt and 25% like equity. Assume that the risk-free rate of return is 2% per annum and that the expected rate of return on the market is 2% + 4% = 6%. This project promised is to deliver $200 next year. This firm has a 5% probability of going bankrupt. What is the promised rate of return for the firm? 

Promised rate of return for the firm = 11.58%.

Risk-free rate of return = 2% per annum

Expected rate of return on the market (given) = 2% + 4%

= 6%.

Project promised is to deliver $200 next year and has a 5% probability of going bankrupt. This means expected cash flow is $190 with probabilities of 95% for receiving $200 and 5% for receiving $0.

Expected cash flow = ($200 * 95%) + ($200 * 0%)

= $190.

In order to earn 6% return with expected outcome, you have to find the present value of $190 at 6% = $190 / 1.06

= $179.25.

Promised rate of return for the firm = ($200 / $179.25) - 1

= 0.1158

= 11.58%