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Tgnacio, Inc, had after-tax operating income last year of $1,198,000. Three souroes of finanoing were used by the company: $2 milion of mortgage bonds paying
Tgnacio, Inc, had after-tax operating income last year of $1,198,000. Three souroes of finanoing were used by the company: $2 milion of mortgage bonds paying 4 percent interest, $5 million of unsecured bonds paying 6 peroent interest, and $11 million in common stock, which was onsidered to be relatively risky (with a risk premium of 8 percent). The rate on long-term trensuries is 3 percent. Ignacio, Inc, pays a marginal tax rate of 30 percent Required: 1. Calculate the after-tax cost of each method of finanong. Enter your answers as decimal values rounded to three places. For example, 4.36% would be entered as ..044" Mortgage bonds0.028 Unsecured bonds Common stock 2. Calculate the weighted average cost of capital for Ignacio, Inc. Round intermediate calculations t decimal places. Round your final answer to four decimal places before converting to a peroentage, For example, .06349 would be rounded to.0635 and entered as "6.35 0.042 to four peroent. 8.31 x Calculate the total dollar amount of capital employed for ignacio, Inc. 3. Calculate economic value added (EVA) for Ignacio, Inc., for last year. If the EVA & negative, enter your answer as negative amount. Is the company creating or destroying wealth? 4 What if Ignacio, Inc., had common stock which was less risky than other stocks and commanded nsk premium of percent? How would that affect the weighted average cost of capital? what is the new EVA? In your calculations, round weighted everage percentage cost of captal to four deamal places. If the EVA mal places negative, enter your answer as a negative amount
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