Question
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 4.5% 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.
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