Author Question: In order to accurately assess the capital structure of a firm, it is necessary to convert its ... (Read 86 times)

joe3899 · **on:** Aug 7, 2023

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. KJM Corporation’s balance sheet as of today is as follows:

Long-term debt (bonds, at par)	$9,000,000
Preferred shares	2,000,000
Common shares ($10 par)	13,000,000
Retained earnings	4,000,000
Total debt and equity	$28,000,000

The bonds have a 5% coupon rate, payable semiannually, and a par value of $1,000. They mature exactly 11 years from today. The yield to maturity is 14%, so the bonds now sell below par. What is the current market value of the firm’s debt?

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$6,076,050

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$6,300,485

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$6,529,120

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$6,750,510

lactosetheintolerant · **Reply #1 on:** Aug 7, 2023

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