CMS Corporation’s balance sheet
CMS Corporation’s balance sheet as of today is as follows:
Long-term debt (bonds, at
par)$10,000,000Preferred stock2,000,000Common stock ($10 par)10,000,000Retained earnings4,000,000Total debt and equity$26,000,000
The bonds have an 8.7% 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?