Gold Company had net income of $2,990,000 last year. Gold provided the following information on its capital structure:

	Total Amount	Interest Rate
Mortgage bonds	$5,000,000	6%
Unsecured bonds	$10,000,000	8%
Common stock	$20,000,000

The common stock is no more or less risky than other stock and has a premium of 6% above the rate on long-term treasuries (currently 5%). Gold's tax rate is 40%.

1.

Calculate the weighted average cost of capital employed by filling in the following table. (Round all calculations to four significant digits. Enter percent in decimals. For example Enter 34.567% as 0.3457. Use rounded computations in subsequent calculations, if required.).

	Total Dollar Amount	Percent		Weighted Cost
Mortgage bonds	$
Unsecured bonds
Common stock
Total	$

Weighted average cost of capital employed is

2.

Total capital employed (rounded to the nearest dollar) is $

3.

EVA is $

Use the Interactive Graph to answer the following questions:

4.

Now change the amount of common stock to $10,000,000. The weighted average cost of capital employed - Select your answer -increaseddecreasedremained the sameItem 18 , the total capital employed - Select your answer -increaseddecreasedremained the sameItem 19 , and EVA - Select your answer -increaseddecreasedremained the sameItem 20 .

5.

Gold Company had net income of $2,990,000 last year. Gold provided the following information on its capital structure:

	Total Amount	Interest Rate
Mortgage bonds	$5,000,000	6%
Unsecured bonds	$10,000,000	8%
Common stock	$20,000,000

The common stock is no more or less risky than other stock and has a premium of 6% above the rate on long-term treasuries (currently 5%). Gold's tax rate is 35%.

The weighted average cost of capital employed - Select your answer -increaseddecreasedremained the sameItem 21 , the total capital employed - Select your answer -increaseddecreasedremained the sameItem 22 , and EVA - Select your answer -increaseddecreasedremained the sameItem 23 .

6.

Gold Company had net income of $2,990,000 last year. Gold provided the following information on its capital structure:

	Total Amount	Interest Rate
Mortgage bonds	$5,000,000	5%
Unsecured bonds	$10,000,000	8%
Common stock	$20,000,000

The common stock is no more or less risky than other stock and has a premium of 6% above the rate on long-term treasuries (currently 5%). Gold's tax rate is 40%.

The weighted average cost of capital employed - Select your answer -increaseddecreasedremained the sameItem 24 , the total capital employed - Select your answer -increaseddecreasedremained the sameItem 25 , and EVA - Select your answer -increaseddecreasedremained the sameItem 26 .

7.

Gold Company had net income of $2,990,000 last year. Gold provided the following information on its capital structure:

	Total Amount	Interest Rate
Mortgage bonds	$5,000,000	6%
Unsecured bonds	$10,000,000	8%
Common stock	$20,000,000

The common stock is no more or less risky than other stock and has a premium of 10% above the rate on long-term treasuries (currently 5%). Gold's tax rate is 40%.

The weighted average cost of capital employed - Select your answer -increaseddecreasedremained the sameItem 27 , the total capital employed - Select your answer -increaseddecreasedremained the sameItem 28 , and EVA - Select your answer -increaseddecreasedremained the sameItem 29 .

Continue to make changes to the data, one variable at a time, and observe the effect on weighted average cost of capital, total capital employed, and EVA.