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)$21,500,000Preferred stock1,000,000Common stock ($10 par)11,000,000Retained earnings4,000,000Total debt and equity$37,500,000The 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. a. $18,219,007 b. $18,253,322 c. $18,168,308 d. $19,766,893 e. $18,983,791

Bond:Bond is an instrument used by corporations to finance its long term or short term capital…

Answered: The bonds have an 8.9% coupon rate,…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

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:

Long-term debt (bonds, at par)	$21,500,000
Preferred stock	1,000,000
Common stock ($10 par)	11,000,000
Retained earnings	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.

a. $18,219,007

b. $18,253,322

c. $18,168,308

d. $19,766,893

e. $18,983,791

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