The bonds have an 8.9% coupon rate, payable semiannually, and a par value of $1,000. They mature exactly 15 years from today. The yield to maturity is 11%, so the bonds now sell below par. What is the current market value of the firm's debt?
The bonds have an 8.9% coupon rate, payable semiannually, and a par value of $1,000. They mature exactly 15 years from today. The yield to maturity is 11%, so the bonds now sell below par. What is the current market value of the firm's debt?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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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 market values. KJM Corporation's balance sheet (book values) as of today is as follows:
The bonds have an 8.9% coupon rate, payable semiannually, and a par value of $1,000. They mature exactly 15 years from today. The yield to maturity is 11%, so the bonds now sell below par. What is the current market value of the firm's debt? Do not round your intermediate calculations.
| Long-term debt (bonds, at par) | $21,500,000 |
| 1,000,000 | |
| Common stock ($10 par) | 11,000,000 |
| 4,000,000 | |
| Total debt and equity | $37,500,000 |
The bonds have an 8.9% coupon rate, payable semiannually, and a par value of $1,000. They mature exactly 15 years from today. The yield to maturity is 11%, so the bonds now sell below par. What is the current market value of the firm's debt? Do not round your intermediate calculations.
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