ABC Co$.$ and XYZ Co$.$ are identical firms in all respects except for their capital structures. ABC is all$-$equity financed with $$400,000$ in stock. XYZ uses both stock and perpetual debt; its stock is worth $$200,000$ and the interest rate on its debt is $5\mathrm{.}8$ percent. Both firms expect EBIT to be $$45,000.$ Ignore taxes.

a$.$ Richard owns $$20,000$ worth of XYZ$$s stock. What rate of return is he expecting? $($Do not round intermediate calculations and enter your answer as a percent rounded to $2$ decimal places, e$.$g$.,32\mathrm{.}16.)$

b$.$ Suppose Richard invests in ABC Co$.$ and uses homemade leverage to match his cash flow in part $($a$).$ Calculate his total cash flow and rate of return. $($Enter your return answer as a percent. Do not round intermediate calculations and round your answers to $2$ decimal places, e$.$g$.,32\mathrm{.}16.)$

c$.$ What is the cost of equity for ABC and XYZ$?($Do not round intermediate calculations and enter your answers as a percent rounded to $2$ decimal places, e$.$g$.,32\mathrm{.}16.)$

d$.$ What is the WACC for ABC and XYZ$?($Do not round intermediate calculations and enter your answers as a percent rounded to $2$ decimal places, e$.$g$.,32\mathrm{.}16.)$Fowler$,$ Inc., has no debt outstanding and a total market value of $$240,000.$ Earnings

before interest and taxes, EBIT, are projected to be $$26,000$ if economic conditions are

normal. If there is strong expansion in the economy, then EBIT will be $18$ percent higher.

If there is a recession, then EBIT will be $20$ percent lower. The firm is considering a debt

issue of $$150,000$ with an interest rate of $8$ percent. The proceeds will be used to

repurchase shares of stock. There are currently $15,000$ shares outstanding. Ignore taxes

for this problem. Assume the stock price is constant under all scenarios.

a$-1.$ Calculate earnings per share, EPS, under each of the three economic scenarios

before any debt is issued. $($Do not round intermediate calculations and round your

answers to $2$ decimal places, e$.$g$.,32\mathrm{.}16.)$

$a-2.$ Calculate the percentage changes in EPS when the economy expands or enters a

recession. $($A negative answer should be indicated by a minus sign. Do not round

intermediate calculations and enter your answers as a percent rounded to $2$

decimal places, e$.$g$.,32\mathrm{.}16.)$

b$-1.$ Calculate earnings per share $($EPS$)$ under each of the three economic scenarios

assuming the company goes through with recapitalization. $($Do not round

intermediate calculations and round your answers to $2$ decimal places, e$.$g$.,$

$32\mathrm{.}16.)$

b$-2.$ Given the recapitalization, calculate the percentage changes in EPS when the

economy expands or enters a recession. $($A negative answer should be indicated

by a minus sign. Do not round intermediate calculations and enter your answers

as a percent rounded to $2$ decimal places, e$.$g$.,32\mathrm{.}16.)$

Answer is complete but not entirely correct.