1. Abacus Calculation Company and Zoom Calculators, Inc., are identical except for capital structures. Abacus has 50 percent debt and 50 percent equity, whereas Zoom has 20 percent debt and 80 percent equity. (All percentages are in market-value terms.) The borrowing rate for both companies is 8 percent in a no-tax world, and capital markets are assumed to be perfect.

280 Part I11 Financing and Dividend Policies