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

question 149

Multiple Choice

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