What is the weighted cost of capital for el suezo

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Reference no: EM13938611

Weighted Average Cost of Capital and Economic Value Added El Suezo Inc. had after-tax operating income last year of $600,000. Two sources of financing were used by the company: $2.5 million of mortgage bonds paying 8 percent interest and $10 million in common stock, which was considered to be no more or less risky than other stocks. The rate of return on long-term government bonds is 6 percent. El Suezo pays a marginal tax rate of 40 percent. Total capital employed is $5.3 million.

Required:

1. What is the weighted cost of capital for El Suezo?

2. Calculate EVA for El Suezo.

Reference no: EM13938611

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