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    Debt Market Value

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    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) $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 4.0% 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?

    © BrainMass Inc. brainmass.com June 3, 2020, 11:52 pm ad1c9bdddf
    https://brainmass.com/business/bond-valuation/debt-market-value-304863

    Solution Preview

    Bond Price = Cashflow * { 1 - {1/(1+interest rate)^n}}/ interest rate + Maturity Value * 1/(1+interest ...

    Solution Summary

    The solution computes current debt market value for KJM Corporation.

    $2.19

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