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Calculating Weighted Averago Cost of Capital and Economic Value Added (EVA) Ignacio, Inci, had after-tax operating income last year of $1,199,000. Three sources of financing
Calculating Weighted Averago Cost of Capital and Economic Value Added (EVA) Ignacio, Inci, had after-tax operating income last year of $1,199,000. Three sources of financing were used by the compary: $2 million of mortgage bonds paying 4 percent interest, 34 million of unsecured bonds paying 6 percent interest, and $11 mittion in comman 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, Incy pays a marginal tax rate of 30 percent. Requiredi 1. Calculate the after-tak 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", Mortgage bonds Unsected bonds Commion stock 2. Calculate the weighted average colt of capital for Ignscio, Inc. Round intermediate calculations to four decimal places. found 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. Casculate the total dollar a maunt of capital employed for Ignacio, Inc. 3. Calculate economic value added (FVA) for Ignaco, Inc, for last year. If the EVA is negative, enter your answer as a negative amount. Is the company creeting or destroying wealth? 4. What if Ignaco, Inc, hod common stock which was less risky than other stocks and commanded a riek premium of 5 percent? How would that affect the weighted average cost of capeal? 2. Calcuiate the welghted averagt cost of capital for Ionacio, Ine 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. Calculate the total dollat amount of capital employed for Ignacio, Incici 3. Calculate economic value added (EVA) for lgnacio, Inc, for last year, If the EVA is negative, enter your answer as a negative amount. Is the company creating of destroying wealth? 4. What if 1gnacio, inc, had common stock which was less risky than other stocks and commanded a risk premium of 5 percent? How would that affect the weighted average cost of capital? What 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
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