For questions 14 and 15.

Donegal, Inc., has decided to use EVA to evaluate its performance.

Last year, Donegal had after-tax operating income of $900,000. Three sources of financing were used by the company: $2 million of mortgage bonds paying 9 percent interest, $3 million of unsecured bonds paying 11 percent interest, and $10 million in common stock, which was considered to be relatively more risky than other stocks, and had a risk premium of 8 percent. Donegal, Inc., pays a marginal tax rate of 40 percent.

14. Calculate the weighted average cost of capital for Donegal, Inc. (round to nearest 3 decimal

points).

2,000,000

.13 x .09 (1 - .04)

= .0072

3,000,000

.20 x .11 (1 - .04)

= .0132

10,000,000

.67 x .14

= .0938

why 10M need multiply 0.14