5. BAC Co. and YXZ Co. are identical firms in all respects except for their capital structure. BAC is all equity financed with $800,000 in stock.

YXZ uses both stock and perpetual debt; its stock is worth $400,000 and the interest rate on its debt is 10 percent.

Both firms expect EBIT to be $95,000. Ignore taxes.

a. Richard owns $30,000 worth of YXZs stock. What rate of return is he expecting?

b. Show how Richard could generate exactly the same cash flows and rate of return by investing in ABC and using homemade leverage.

c. What is the cost of equity for BAC? What is it for YXZ?

d. What is the WACC for BAC and for YXZ? What principle have you illustrated?

please show your workflow thanks (no excel allowed, I want to understand)