Gainer Company has three sources of financing: $3 million of mortgage bonds paying 5 percent interest, $2.5 million of unsecured bonds paying 8 percent interest, and $4.5 million of common stock, which is considered to be of average risk (with a 6 percent premium). The company's tax rate is 40 percent and the rate of interest on long-term government bonds is 3 percent. Last year, Gainer Company had after-tax income of $768,000. Fill in the following table to calculate the weigted average percent cost of capital. (Round all decimals to four significant digits.) Amount Percent After-Tax Cost Weighted Cost Mortgage bonds $3,000,000 Unsecured bonds 2,500,000 Common stock 4,500,000 Total
Gainer Company has three sources of financing: $3 million of mortgage bonds paying 5 percent interest, $2.5 million of unsecured bonds paying 8 percent interest, and $4.5 million of common stock, which is considered to be of average risk (with a 6 percent premium). The company's tax rate is 40 percent and the rate of interest on long-term government bonds is 3 percent. Last year, Gainer Company had after-tax income of $768,000. Fill in the following table to calculate the weigted average percent cost of capital. (Round all decimals to four significant digits.) Amount Percent After-Tax Cost Weighted Cost Mortgage bonds $3,000,000 Unsecured bonds 2,500,000 Common stock 4,500,000 Total
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Gainer Company has three sources of financing: $3 million of mortgage bonds paying 5 percent interest, $2.5 million of unsecured bonds paying 8 percent interest, and $4.5 million of common stock, which is considered to be of average risk (with a 6 percent premium). The company's tax rate is 40 percent and the rate of interest on long-term government bonds is 3 percent. Last year, Gainer Company had after-tax income of $768,000. Fill in the following table to calculate the weigted average percent cost of capital. (Round all decimals to four significant digits.)
| Amount | Percent | After-Tax Cost | Weighted Cost | |
| Mortgage bonds | $3,000,000 | |||
| Unsecured bonds | 2,500,000 | |||
| Common stock | 4,500,000 | |||
| Total |
What is the weighted average percent cost of capital?
What is the total cost of capital employed?
What is the EVA?
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