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Your company had after-tax operating income last year of $7,006,000. Three sources of financing were used by the company: $1 million of mortgage bonds paying
Your company had after-tax operating income last year of $7,006,000. Three sources of financing were used by the company: $1 million of mortgage bonds paying 3 percent interest, $3 million of unsecured bonds paying 16 percent interest, and $1 million in common stock, which was considered to be no more or less risky than other stocks. (Over time, stockholders have received an average return that is 10 percentage points higher than the return on long-term government bonds.) The rate of return on long-term U.S. Treasury bonds is 9 percent. Your company pays a marginal tax rate of 33 percent. 1) Use for form below to calculate your EVA 2) Interpret your EVA
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