Reference no: EM132757221
In order to accurately asses the capital structure of a firm, it is necessary to convert its balance sheet figures to market value basis. KJM Corporation's Balance sheet as of today it as follows:
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
Problem 1: The bonds have a 4.0% coupon rate, payable semiannually, and a par value of $1000. 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?