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calculating the weighted average cost of capital and economic value

Ignacio Inc had a after tax operating income last year of $1,195,500. Three sources of financing were used by the company: $1 million of mortage 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 risk (with a risk premium of 8 percent) The rate on long term treasuries is 3 percent. ignacio inc pays marginal tax rate of 30 percent

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Calculating Weighted Average Cost of Capital and Economic Value Added (EVA) 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 bon 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.y pays a margi Required: 1. Calculate the after-tax cost of each method of financing. Enter vour answers as decimal values rounded to three places. For example, 4.36% Mortgage bonds Unsecured bonds Common stock 2. Calculate the weighted average cost of capital for Ignacio, Inc. Round intermediate calculations to four decimal places. Round your final answ 0635 and entered as " 6.35 " percent. % 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 is negative, enter your answer as a negative amount. 4 Is the company creating or destroying wealth? 4. What if Ignacio, Inc., had common stock which was less risky than other stocks and commanded a risk premium of 5 percent? How would that affect What is the new EVA? In your calculations, round weighted average percentage cost of capital to four decimal places. If the EVA is negative, 4 x

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