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1. (6 pt) ABC Corp. and XYZ Corp. are identical firms except for leverage. ABC is financed by 40% debt and 60% equity. XYZ is

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1. (6 pt) ABC Corp. and XYZ Corp. are identical firms except for leverage. ABC is financed by 40% debt and 60% equity. XYZ is financed by 20% debt and 80% equity. The expected market return is 8%, risk-free rate is 3%, and corporate tax rate is 10%. Assume debt beta=0 for both companies. 0 (2 pt) What are the relations (greater than, equal to less than) between these two companies asset and equity betas? Fill in the blanks below. (>,= or ,= or

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