Financial Management: Principles and Applications, 13/e

9.2 Valuing Corporate Debt

The value of corporate debt is equal to the present value of the contractually promised principal and interest payments (the cash flows) discounted back to the present using the market’s required yield to maturity on bonds of similar risk. In effect, the valuation of corporate debt relies on the first three basic principles of finance: Principle 1: Money Has a Time Value, Principle 2: There Is a Risk-Return Tradeoff, and Principle 3: Cash Flows Are the Source of Value. Keep these principles in mind as we examine the ...