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

question 115

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CMS Corporation's balance sheet as of today is 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\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 \\\hline \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?

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Definitions:

Principal

The original sum of money lent or invested, excluding any profits or interest generated from it.

Commission

A fee paid to an agent in a transaction, typically calculated as a percentage of the sale price.

Car Salesman

A person who sells new or used vehicles at a dealership.

Margins

The difference between the selling price of a good or service and its cost of production, often expressed as a percentage of the selling price, indicative of profitability.

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