Determine the current market value of the firm debt

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Reference no: EM132067171

Question: (a) Beginning this year, Mary is planning to save $800 each year for the next six years to take a vacation to commemorate the seventh year of her career. Assuming the interest rate offered by her bank is 9 percent annually, how much will Mary have in the account at the end of seven years? If Mary increases her savings to $1500 annually, will this be enough to take care of her vacation which is estimated to cost $15,000. Calculate her account balance at the end of seven years?

(b) The following is the balance sheet for ABC Corporation's as at December 31, 2016.

Long term debt (bonds at par $20,000,000

Preferred Stock $12,000,000

Common Stock ($10 par) $14,000,000

Total Liabilities and Equity $46,000,000

The bonds have a 6 percent coupon rate, payable semiannually and a par value of $1,000. They mature in 8 years time. The yield to maturity is 16 percent, so the bonds now sell below par. Determine the current market value of the firm's debt?

Reference no: EM132067171

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