Long-term debt (bonds, at par)

$10,000,000

Preferred stock

2,000,000

Common stock ($10 par)

10,000,000

Retained earnings

4,000,000

Total debt and equity

$26,000,000

The bonds have a 8.7% coupon rate, payable semiannually, and a par value of $1,000. They mature

exactly 10 years from today. The yield to maturity is 12%, so the bonds now sell below par. What is the

current market value of the firm's debt?