In order to accurately assess the capital structure of a firm, it is necessary to convert its balance sheet figures to a market value basis. K Corporation's balance sheet as of today, January 1, 2015, is 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

The bonds have a 4 percent coupon rate, payable semiannually, and a par value of $1,000. They mature on January 1, 2025. The yield to maturity is 12 percent, so the bonds now sell below par. What is the current market value of the firm's debt?

Answer rating: 100% (QA)

Coupon rate 4 0 Par value FV 1 000 Yrs to maturity 10 Periods Yr 2 Periods Years View the full answer