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CMS Corporation's balance sheet as of today is as follows: Long-term debt (bonds, at par) $10,000,000...

CMS Corporation's balance sheet as of today 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 7.3% coupon rate, payable semiannually, and a par value of $1,000. They mature exactly 10 years from today. The yield to maturity is 12%, so the bonds now sell below par. What is the current market value of the firm's debt?

Select the correct answer.

a. $7,303,860
b. $7,305,277
c. $7,304,569
d. $7,305,985
e. $7,303,152
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Answer #1

Please refer to below spreadsheet for calculation and answer. Cell reference also provided.

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