Question
In order to accurately assess the capital structure of a firm, it is necessary to convert its balance sheet figures from historical book values to
In order to accurately assess the capital structure of a firm, it is necessary to convert its balance sheet figures from historical book values to market values. KJM Corporation's balance sheet (book values) as of today is as follows: Long-term debt (bonds, at par) $21,500,000 Preferred stock 2,000,000 Common stock ($10 par) 12,000,000 Retained earnings 5,000,000 Total debt and equity $40,500,000 The bonds have a 7.2% coupon rate, payable semiannually, and a par value of $1,000. They mature exactly 15 years from today. The yield to maturity is 10%, so the bonds now sell below par. What is the current market value of the firm's debt? Do not round your intermediate calculations.
a. $18,098,561
b. $17,467,806
c. $16,872,892
d. $16,921,140
e. $16,790,127
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