CMS Corporation's Balance Sheet as of Today Is as Follows

question 61

Multiple Choice

CMS Corporation's balance sheet as of today is as follows: $$\begin{array} { l r } \text { Long-term debt (bonds, at par) } & \$ 10,000,000 \\\text { Preferred stock } & 2,000,000 \\\text { Common stock ( } \$ 10 \text { par) } & 10,000,000 \\\text { Retained earnings } &\underline{ 4,000,000} \\ \text { Total debt and equity } & \underline{\$ 26,000,000} \\\end{array}$$ 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?

• A)$5,276,731
• B)$5,412,032
• C)$5,547,332
• D)$7,706,000
• E)$7,898,650

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Definitions:

Separately Elected

The process or state of being chosen or elected independently from others or through a separate procedure.

Proprietary Fund Types

Types of funds in governmental accounting used to account for activities similar to those found in the private sector, where the determination of net income is necessary or useful.

Statement of Cash Flows

A financial report that details the inflows and outflows of cash within a company over a specific period.

Governmental Fund Types

Types of funds used by governmental entities to account for their financial resources, including general, special revenue, debt service, capital projects, and permanent funds.