Ignacio,Inc.,hadafter-taxoperatingincomelastyearof$1,196,500.Three sources of nancing were used by the company: $2 million of mortgage bonds paying 4 percent

Question:

Ignacio,Inc.,hadafter-taxoperatingincomelastyearof$1,196,500.Three sources of ﬁnancing were used by the company: $2 million of mortgage bonds paying 4 percent interest, $4 million of unsecured bonds paying 6 percent interest, and $9 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 4 percent. Ignacio, Inc., pays a marginal tax rate of 30 percent.(Roundall ratios to four signiﬁcantdigits.)
Required:
1. Calculate the after-tax cost of each method of ﬁnancing.
2. Calculate the weighted average for Ignacio, Inc. Calculate the total dollar amount of capital employed for Ignacio, Inc.
3. Calculate economic value added (EVA) for Ignacio, Inc., for last year. Is the company creating or destroying wealth?
4. What if Ignacio, Inc., had which was less risky than other and commanded a risk premium of 5 percent? How would that affect the weighted average How would it affect EVA? Common Stock
Common stock is an equity component that represents the worth of stock owned by the shareholders of the company. The common stock represents the par value of the shares outstanding at a balance sheet date. Public companies can trade their stocks on... Stocks
Stocks or shares are generally equity instruments that provide the largest source of raising funds in any public or private listed company's. The instruments are issued on a stock exchange from where a large number of general public who are willing... Cost Of Capital
Cost of capital refers to the opportunity cost of making a specific investment . Cost of capital (COC) is the rate of return that a firm must earn on its project investments to maintain its market value and attract funds. COC is the required rate of...