In Order to Accurately Assess the Capital Structure of a Firm,it

question 81

Multiple Choice

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: $\begin{array}{lr}\text { Long-term debt (bonds, at par) } & \$ 23,500,000 \\\text { Preferred stock } & 2,000,000 \\\text { Common stock ( } \$ 10 \text { par) } & 10,000,000 \\\text { Retained earnings } & 4,000,000 \\\hline\text { Total debt and equity }&\$39,500,000\end{array}$
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The bonds have a 8.3% coupon rate,payable semiannually,and a par value of $1,000.They mature exactly 10 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?

• A) $19,708,741
• B) $22,073,790
• C) $24,241,752
• D) $21,679,615
• E) $15,569,906

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