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: long-term debt (bonds, at par) $23,500,000 preferred stock 2,000,000 common stock ($10 par) 10,000,000 retained earnings 4,000,000 total debt and equity $39,500,000 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?

$19,708,745

Explanation:

We first have to calculate the present value of the bonds:

Nper = 20 (10 years x 2 payments per year)

R = 11% / 2 = 5.5%

Payment = 83 / 2 = 41.50

Future value = 1,000

PV = ?

To calculate the present value we can use an excel spreadsheet and the present value function =PV(5.5%,20,41.5,1000) = $838.67

Now we calculate how many bonds were issued = $23,500,000 / $1,000 = 23,500 bonds.

To determine the market value of the debt outstanding we multiply the present value of the bonds times the total number of bonds outstanding

= $838.67 x 23,500 = $19,708,745

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