ABC Co. and XYZ Co. are identical firms in all respects except for their capital structure. ABC is all equity financed with $450,000 in stock. XYZ uses both stock and perpetual debt; its stock is worth $225,000 and the interest rate on its debt is 6 percent. Both firms expect EBIT to be $51,000. Ignore taxes.

Rico owns $22,500 worth of XYZs stock. What rate of return is he expecting?