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) Preferred stock Common stock ($10 par) Retained earnings Total debt and equity $21,500,000 3,000,000 9,000,000 5,000,000 $38,500,000 The bonds have a 7.0% coupon rate, payable semiannually, and a par value of $1,000. They mature exactly 20 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. O a. $16,008,751 O b. $17,290,043 O c. $15,966,195 O d. $15,921,592 O e. $16,611,805
Cost of Capital
Shareholders and investors who invest into the capital of the firm desire to have a suitable return on their investment funding. The cost of capital reflects what shareholders expect. It is a discount rate for converting expected cash flow into present cash flow.
Capital Structure
Capital structure is the combination of debt and equity employed by an organization in order to take care of its operations. It is an important concept in corporate finance and is expressed in the form of a debt-equity ratio.
Weighted Average Cost of Capital
The Weighted Average Cost of Capital is a tool used for calculating the cost of capital for a firm wherein proportional weightage is assigned to each category of capital. It can also be defined as the average amount that a firm needs to pay its stakeholders and for its security to finance the assets. The most commonly used sources of capital include common stocks, bonds, long-term debts, etc. The increase in weighted average cost of capital is an indicator of a decrease in the valuation of a firm and an increase in its risk.
![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)
Preferred stock
Common stock ($10 par)
Retained earnings
Total debt and equity
$21,500,000
3,000,000
9,000,000
5,000,000
$38,500,000
The bonds have a 7.0% coupon rate, payable semiannually, and a par value of $1,000. They mature exactly 20 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.
O a. $16,008,751
O b. $17,290,043
c. $15,966,195
O d. $15,921,592
O e. $16,611,805](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Ff8a86740-781a-4204-bc63-549b5147664d%2F7ffae487-afaa-4361-a273-b6d795d99129%2F9ej78dh_processed.jpeg&w=3840&q=75)
![Francis Inc.'s stock has a required rate of return of 12.45%, and it sells for $72.50 per share. The dividend is expected to grow at a constant rate of 6.00% per year. What is the expected year-end dividend, D₁?
a. $4.96
O b. $4.68
c. $9.03
O d. $4.41
O e. $4.35](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Ff8a86740-781a-4204-bc63-549b5147664d%2F7ffae487-afaa-4361-a273-b6d795d99129%2Fwxs5eyd_processed.jpeg&w=3840&q=75)
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Bond's present value can be determined by discounting all future cash flows of coupon amount adding to the present value of the maturity amount.
dividend at the year end can be determined by using the formula of dividend discounting model
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