ABC co. And XYZ co. are identical firms in all respects except for their capital structures. ABC is all-equity financed with $650,000 in stock. XYZ uses both stock and perpetual debt, its stock is worth $325,000 and the interest rate on its debt is 6.5 percent. Both firms expect EBIT to be $71,000. Ignore taxes

A.) Richards owns $39,000 worth of XYZs stock. What rate of return is he expecting?

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.

C.) What is the cost of equity for ABC and XYZ ?

D.) What is the WAAC for ABC and XYZ ?