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Calculating Weighted Average Cost of Capital and Economic Value Added (EVA) Ignacio, Incy, had after-tax operating income last year of $1,195,000. Three sources of financing
Calculating Weighted Average Cost of Capital and Economic Value Added (EVA) Ignacio, Incy, had after-tax operating income last year of $1,195,000. Three sources of financing were used by the company: 51 milion of mortgage bonds paying 4 percent interest, $4 million of unsecured bonds paying 6 percent interest, and $11 million in commen stock, which was considered to be relativelr risky (with a risk Dremlum of 8 percent), The rate an long-term treasuries is 3 pericent. Ignacio, Inc, pors a marginat tax rate of 30 percent: Required: 1. Calculate the after-tax cost of each method of financing. Enter your answers as decimal values rounded to three places. For example, 4.36% would be entered as ".044". Mortgoge bonds Unsecured bonds Commen stock 2. Catculate the weighted average cost of capital for tonacio, Inc. Round intermediate calculations to four decimal places. Round your finat answer to four. decimal places before converting to a percentage. For example, .06349 would be rounded to .0635 and entered as " 6.35 percent W Calculate the toul doliar amount of captal emplored for tonacio, inc. Is the cumpany crevimg or dectroying wealds? 2. Calculate the weighted average cost of capital for Ignacio, Inc. Round intermediate calculations to four decimal places. Round your final answer to four decimal places before converting to a percentage. For example, .06349 would be rounded to, 0635 and entered as "6.35" percent. % Caiculate the total dollar amount of capital employed for Ignacio, Inc. 3. Calculate economic value added (EVA) for Ignacio, inc, for last year, If the EVA is negative, enter your answer as a negative amount. Is the company creating or destroying wealih? 4. What if Ignacio, Inc, had common stock which was less risky than other stocks and colfmanded a risk premium of 5 percent? How would that affect the weighted average cost of capitan? What is the new EVA? In your calculations, round welighted average percentage cost of capital to four decimal places. It the cVA is negative, enter your answer as a negative amount. x fertiax
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