Question
In: Finance
CMS Corporation's balance sheet as of today is as follows: Long-term debt (bonds, at par) $10,000,000...
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 |
The bonds have a 8.1% 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?
Select the correct answer.
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Solutions
Expert Solution
We know that at YRM , Present value of the future cash inflows is the market price of the bond
Coupon Amount = $ 1000*8.1% /2 = $ 40.5( Sincew the Coupons are paid semi annually)
YTM = 12% ( OR ) 6% for 6 Months
No.of Coupon payments remaining = 10*2 = 20
No.of Bonds that the Company have = $ 100,00000/$ 1000
= 10000 bonds.
Calculation of Current price of a bond
| S.No | Cash flow | Disc @ 6% | Discounted cash flows |
| 1 | $40.50 | 0.9434 | $38.2075 |
| 2 | $40.50 | 0.8900 | $36.0449 |
| 3 | $40.50 | 0.8396 | $34.0046 |
| 4 | $40.50 | 0.7921 | $32.0798 |
| 5 | $40.50 | 0.7473 | $30.2640 |
| 6 | $40.50 | 0.7050 | $28.5509 |
| 7 | $40.50 | 0.6651 | $26.9348 |
| 8 | $40.50 | 0.6274 | $25.4102 |
| 9 | $40.50 | 0.5919 | $23.9719 |
| 10 | $40.50 | 0.5584 | $22.6150 |
| 11 | $40.50 | 0.5268 | $21.3349 |
| 12 | $40.50 | 0.4970 | $20.1273 |
| 13 | $40.50 | 0.4688 | $18.9880 |
| 14 | $40.50 | 0.4423 | $17.9132 |
| 15 | $40.50 | 0.4173 | $16.8992 |
| 16 | $40.50 | 0.3936 | $15.9427 |
| 17 | $40.50 | 0.3714 | $15.0403 |
| 18 | $40.50 | 0.3503 | $14.1889 |
| 19 | $40.50 | 0.3305 | $13.3858 |
| 20 | $1,040.50 | 0.3118 | $324.4328 |
| Total | $776.3365 |
So the Market price of 10000 bonds is $ 776.3365*10000= $ 77,63365.
So the Market value of the debt is $7763365.So option a)$ 7763365 is the correct answer.
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jeff jeffy answered 2 years agoRelated Solutions
CMS Corporation's balance sheet as of today is as follows: Long-term debt (bonds, at par) $10,000,000...
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
The bonds have an 4.6% 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?
Select the correct...
CMS Corporation's balance sheet as of today is as follows: Long-term debt (bonds, at par) $10,000,000...
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
The bonds have an 4.3% 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?
Select the correct...
MS Corporation's balance sheet as of today is as follows: Long-term debt (bonds, at par) $10,000,000...
MS 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
The bonds have an 6.4% 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?
Kidder Corporations balance sheet shows an historical book value for long term debt ( bonds, at...
Kidder Corporations balance sheet shows an historical book value
for long term debt ( bonds, at par) of $23,500,000. The bonds have
a 6.4% coupon rate, payable semiannually and a par value of 1.000.
They mature exactly 10 years from today. The yield to maturity is
9.20%, so the bonds now sell below par. What is the current market
value of the firms debt? Please round your answer 2 decimal
places.
Balance Sheet Data Long-Term Debt 80,000,000 &nb
Balance Sheet Data
Long-Term
Debt
80,000,000
Preferred Stock
20,000,000
Common Equity
20,000,000
Number of shares of Common
1,500,000
Price per share
Common
$42
Number of shares of
Preferred
150,000
Price per share
Preferred
$108
Number of 8% Coupon 25-year Bonds
40,000
Price of 8% 25-year Bonds $1075
Number of 6% Coupon 15-year Bonds
40,200
Price of 6% 15-year Bonds $920
Forecasted Dividend on Common
(D1)
$3.30
Dividend Rate on
Preferred ...
Balance Sheet Data Long-Term Debt 80,000,000 &nb
Balance Sheet Data
Long-Term
Debt
80,000,000
Preferred Stock
20,000,000
Common Equity
20,000,000
Number of shares of Common
1,500,000
Price per share
Common
$42
Number of shares of
Preferred
150,000
Price per share
Preferred
$108
Number of 8% Coupon 25-year Bonds
40,000
Price of 8% 25-year Bonds $1075
Number of 6% Coupon 15-year Bonds
40,200
Price of 6% 15-year Bonds $920
Forecasted Dividend on Common
(D1)
$3.30
Dividend Rate on
Preferred ...
Balance Sheet Data Long-Term Debt 80,000,000 &nb
Balance Sheet Data
Long-Term
Debt
80,000,000
Preferred
Stock
20,000,000
Common
Equity
20,000,000
Number of shares of Common
1,500,000
Price per share
Common
$42
Number of shares of
Preferred
150,000
Price per share
Preferred
$108
Number of 8% Coupon 25-year Bonds
40,000
Price of 8% 25-year
Bonds
$1075
Number of 6% Coupon 15-year Bonds
40,200
Price of 6% 15-year
Bonds
$920
Forecasted Dividend on Common
(D1)
$3.25
Dividend Rate on
Preferred 9.5%
Par...
Balance Sheet Data Long-Term Debt 80,000,000 &nb
Balance Sheet Data
Long-Term
Debt
80,000,000
Preferred Stock
20,000,000
Common Equity
20,000,000
Number of shares of Common
1,500,000
Price per share
Common
$42
Number of shares of
Preferred
150,000
Price per share
Preferred
$108
Number of 8% Coupon 25-year Bonds
40,000
Price of 8% 25-year Bonds $1075
Number of 6% Coupon 15-year Bonds
40,200
Price of 6% 15-year Bonds $920
Forecasted Dividend on Common
(D1)
$3.30
Dividend Rate on
Preferred ...
Long-term liabilities Long-term debt violation at the balance sheet date Note: In the following exercise, you...
Long-term liabilities
Long-term debt violation at the balance sheet
date
Note: In the following exercise, you are required to review the
Basis for Conclusions (BCs) for the standard(s) that provide the
accounting guidance for this topic. As the BCs are generally not
included in the codification and thus are not authoritative, it
will most likely be necessary for you to research them through
review of the pre-codified standards. Appropriate references have
been provided to allow you to do so. Pre-codified...
Typical balance sheet classifications are as follows. a. Current Assets b. Long-term Investments ...
Typical balance sheet classifications are as follows.
a. Current Assets b. Long-term
Investments c. Property Plant & Equipment
d. Intangible Assets
e. Other
Assets
f. Current
Liabilities
g. Long-Term
Liabilities
h. Capital Stock
i. Additional Paid-In Capital
j. Retained Earnings
k. Notes to Financial Statements
Indicate by use of the above letters how each of the following
items would be classified on a balance sheet prepared at December
31,...
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