1 Part B 2 3 Your company had after-tax operating income last year of $3,850,000. Three sources 5 4 of financing were used by the company: $2 million of mortgage bonds paying 16 percent interest, $9 million of unsecured bonds paying 18 percent interest, and $11 6 million in common stock, which was considered to be no more or less risky than other 7 stocks. (Over time, stockholders have received an average return that is 9 percentage 8 points higher than the return on long-term government bonds.) The rate of return on 9 long-term U.S. Treasury bonds is 7 percent. Your company pays a marginal tax rate of 10 35 percent. 11 1) Use for form below to calculate your EVA. 12 13 Calculate the after-tax cost of each method of financing. Mortgage Bonds 14 15 Unsecured Bonds 16 Common Stock 17 Calculate the weighted average cost of capital. 18 19 Proportional Share of Mortgage Bonds Proportional Share of Unsecured Bonds 20 21 Proportional Share of Common Stock Weighted Cost of Mortgage Bonds 22 Weighted Cost of Unsecured Bonds 23 Weighted Cost of Common Stock 24 Weighted Average Cost of Capital 25 Calculate the total dollar cost of capital employed. 26 Calculate the EVA. 27