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Find what is the current market value of the firm debt

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In order to accurately asses the capital structure of a firm, it is necessary to convert its balance sheet figures to market value basis. KJM Corporation's Balance sheet as of today it 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

Problem 1: The bonds have a 4.0% coupon rate, payable semiannually, and a par value of $1000. 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?

Reference no: EM132757221

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