ABC Co. and XYZ Co. are identical firms in all respects except for their capital structure. 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 5.8 percent. Both firms expect EBIT to be $45,000. Ignore taxes. a. Rico owns $20,000 worth of XYZ's stock. What rate of return is he expecting? Rate of return % b. Suppose Rico invests in ABC Co. and uses homemade leverage. Calculate his total cash flow and rate of return. Total cash flow $ Rate of return % c. What is the cost of equity for ABC and XYZ? Cost of equity ABC % XYZ % d. What is the WACC for ABC and XYZ? WACC ABC % XYZ %