1answer.
Ask question
Login Signup
Ask question
All categories
  • English
  • Mathematics
  • Social Studies
  • Business
  • History
  • Health
  • Geography
  • Biology
  • Physics
  • Chemistry
  • Computers and Technology
  • Arts
  • World Languages
  • Spanish
  • French
  • German
  • Advanced Placement (AP)
  • SAT
  • Medicine
  • Law
  • Engineering
tatuchka [14]
3 years ago
14

In order to accurately assess the capital structure of a firm, it is necessary to convert its balance sheet figures from histori

cal 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 7.0% 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? $17,436,237 $17,883,320 $18,330,403 $17,706,000 $17,898,650
Business
1 answer:
Inessa [10]3 years ago
5 0

Answer:

The MV of Debt is $17,883,320.

Explanation:

The answer to this question involves three step process.

Step 1) Calculate the Price of Each Bond

You must have known that when we discount the future cash flows of bond, that is coupon payments and Face value, we get the Price of that Bond. You will get the price of each bond to be $760.99. I have attached an Excel Sheet, it will help you to understand.

Note: Remember to consider YTM and Number of Periods on Semi-Annual Basis because the coupon payments are to be made Semi-Annually.

Step 2) Determine the Number of Bonds

We know that

     Value of Debt (23,500,000) = Par Value (1,000) * Number of Bonds (x)

Rearrange the equation for Number of Bonds and you will get 23,500.

Step 3) Market Value of Debt

Simply multiply the Price of Each Bond with the Number of Bonds and the answer is $17,883,320.

Thanks!

Download xlsx
You might be interested in
The cash account for American Medical Co. at April 30 indicated a balance of $334,985. The bank statement indicated a balance of
Bas_tet [7]

Answer:

1. Cash balance according to bank statement $370,000

Cash balance according to company’s records $370,000

2. a. April 30

Dr Cash $42,000

Cr Notes Receivable $40,000

Cr Interest Income / Interest Revenue $2,000

b. April 30

Dr Accounts Payable - Targhee Supply Co $6,840

Dr Miscellaneous Expenses [Bank service charge] $145

Cr Cash $6,985

3. $370,000

Explanation:

1. Preparation of a bank reconciliation

AMERICAN MEDICAL COMPANY

Bank Reconciliation

April 30

Cash balance according to bank statement $388,600

Add: Deposit of April 30, Not recorded by bank $42,500

Add: Bank Error in Charging check as $420 instead of $240 [$420 - $240] $180

Deduct: Outstanding Checks $61,280

Adjusted balance $370,000

Cash balance according to company’s records $334,985

Add: Note and Interest Collected by bank $42,000

Deduct: Error in Recording Check [$7,600 - $760] $6,840

Deduct: Bank Service Charges $145

Adjusted balance $370,000

2. Preparation of Journal entries.

Journal entries

a. April 30

Dr Cash $42,000

Cr Notes Receivable $40,000

Cr Interest Income / Interest Revenue $2,000

b. April 30

Dr Accounts Payable - Targhee Supply Co [$7,600 - $760] $6,840

Dr Miscellaneous Expenses [Bank service charge] $145

Cr Cash $6,985

($6,840+$145)

3. Based on the information given If a balance sheet is prepared for American Medical Co. on April 30, the amount that should be reported as cash will be $370,000

8 0
3 years ago
Peter owns 100 shares of a company. He receives a fixed rate of dividend from these shares. Which type of share has Peter purcha
xenn [34]

Answer:

B.  preference shares

Explanation:

Option A is wrong because equity shares provide a different rate of dividends to a shareholder. Equity shares are known as ordinary shares. Therefore, option C is wrong.

There are no priority shares in the components of stockholders' equity. Hence option D is wrong.

Investment security​ does not give any dividends. So option E is wrong.

Option B is correct because preference shares give a fixed rate of dividend.

4 0
4 years ago
1. The planned effort to present a unique image through newspapers, community events, and other visible
Alexus [3.1K]
Five is C four is C threes is B two is D one is C
6 0
3 years ago
Read 2 more answers
Freya plans to invest $3,200 a year for 25 years starting at the end of this year. How much will this investment be worth at the
tekilochka [14]

Answer:

$240,885.11

Explanation:

The formula to be used is = annual payment x annuity factor

Annuity factor = {[(1+r) ^N ] - 1} / r

R = interest rate = 8.2 percent

N = number of years = 25

[(1.082^25) - 1 ] / 0.082 = 75.276598

75.276598 x $3,200 = $240,885.11

I hope my answer helps you

6 0
3 years ago
A company's strategy is unlikely to succeed unless:
Montano1993 [528]

Answer:

d.both answers 1 and 3 occur.

That is

a.the company has competencies and capabilities to efficiently sustain its competitive differentiation.

c.the company's competitive advantage grows out of the entire system of activities working together.

Explanation:

In a perfectly competitive market firms have similar products and so they must compete with each other to get market share.

Gaining a competitive advantage is key in surviving within the market.

Differentiation of its products is the first step to success. When a firm's product is differentiated from others it will gain more customer loyalty as the end user identies the product with a particular trait for example high quality.

When the companie's activities are well synchronised the company achieves efficiency which is a competitive advantage of higher output than other firms.

8 0
3 years ago
Other questions:
  • The following cost data pertain to the operations of Rademaker Department Stores, Inc., for the month of March: Corporate headqu
    6·1 answer
  • Karen’s monthly cell phone bill is $75. What type of budget item would her cell phone bill be?
    11·2 answers
  • John's friend just gave him a pair of concert tickets to see his favorite rock group perform this weekend. Each ticket sells for
    5·1 answer
  • Explain how some of the behavioral biases discussed in the chapter might contribute to the successof technical trading rules.
    15·1 answer
  • Solve the Systems of Equations by 'substitution or eliminat
    15·1 answer
  • Whice of the following best describes the objective section of a lesson plan
    13·1 answer
  • On June 30, 2018, the Esquire Company sold some merchandise to a customer for $48,000. In payment, Esquire agreed to accept a 9%
    15·1 answer
  • On May 20, White Repan Service extended an offer of $108,000 for land that had been priced for sale at $140,000 On May 30 White
    7·1 answer
  • Gibson Electronics identifies licensees in various countries who produce and sell the company's products in their countries in r
    12·1 answer
  • A perpetuity pays $100 each and every year forever. the duration of this perpetuity will be:_________
    10·1 answer
Add answer
Login
Not registered? Fast signup
Signup
Login Signup
Ask question!