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Ignacio, Inc., had after-tax operating income last year of $1,195,500. Three sources of financing were used by the company: $1 million of mortgage bonds paying
Ignacio, Inc., had after-tax operating income last year of $1,195,500. 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.
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