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

question 4

Multiple Choice

CMS Corporation's balance sheet as of today is as follows: $\begin{array}{lr}\text { Long-term debt (bonds, at par) } & \$ 10,000,000 \\\text { Preferred stock } & 2,000,000 \\\text { Common stock (\$10 par) } & 10,000,000 \\\text { Retained earnings } & 4.000,000\\\text { Total debt and equity }& \$ 26,000,000\end{array}$
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:

Net Income

Net income refers to the total profit of a company after all expenses, taxes, and deductions have been subtracted from total revenue.

Accounts

Financial records that track the transactions and balances of specific assets, liabilities, revenues, or expenses.

Balances

The amounts of money recorded in financial accounts, reflecting the difference between credits and debits.