Calculating Weighted Average Cost of Capital and Economic Value Added (EVA)

Ignacio, Inc., had after-tax operating income last year of $1,197,000. Three sources of financing were used by the company: $1 million of mortgage bonds paying 4 percent interest, $5 million of unsecured bonds paying 6 percent interest, and $11 million in common stock, which was considered to be relatively risky (with a risk premium of 8 percent). The rate on long-term treasuries is 3 percent. Ignacio, Inc., pays a marginal tax rate of 30 percent.

after-tax cost of mortgage bonds=0.028

after-tax cost of unsecured bonds=0.042

after-tax cost of common stock= 0.11

If Ignacio, Inc., had common stock which was less risky than other stocks and commanded a risk premium of 5 percent, w hat is the new EVA? In your calculations, round weighted average percentage cost of capital to four decimal places. If the EVA is negative, enter your answer as a negative amount.