In order to accurately assess the capital strucutre of a firm it is necessary to convert its balance sheet (book value) figures to a market value basis. Suppose a company's balance sheet information as of today (3/24/2013) is as follows:
Long-term bonds (at par): $10,000,000
Preferred stock: $2,000,000
Common stock ($10 par value): $10,000,000
Retained earnings: $4,000,000
Total debt and equity) $26,000,000
The company's bonds have an annual 4% coupon (or legal) rate, payable semi-annually, and a $1,000 maturity value. The bonds mature on 3/24/2023 and the yield to maturity (rd) on the bonds is currently 9 percent. Based on this information, what is the total market value of this firm's debt in dollars?