Question
ABC Co. and XYZ Co. are identical firms in all respects except for their capital structure. ABC is all equity financed with $525,000 in stock.
| ABC Co. and XYZ Co. are identical firms in all respects except for their capital structure. ABC is all equity financed with $525,000 in stock. XYZ uses both stock and perpetual debt; its stock is worth $262,500 and the interest rate on its debt is 5.3 percent. Both firms expect EBIT to be $57,000. Ignore taxes. |
| a. | Rico owns $26,250 worth of XYZs stock. What rate of return is he expecting? |
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Foundations Of Finance
Authors: Arthur J. Keown, John H. Martin, J. William Petty
10th Edition
0135160618, 978-0135160619
