ABC Company and XYZ Company are identical firms in all respects except for their

capital structure. ABC is all$-$equity financed with $$675,000$ in stock. XYZ uses both stock

and perpetual debt; its stock is worth $$337,500$ and the interest rate on its debt is $7\mathrm{.}5$

percent. Both firms expect EBIT to be $$72,000.$ Ignore taxes.

a$.$ Rico owns $$50,625$ worth of XYZ$\text{'}$s stock. What rate of return is he expecting? $($Do not

round Intermedlate calculations and enter your onswer as a percent rounded to $2$

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

b$.$ Suppose Rico invests in ABC Company and uses homemade leverage. Calculate his

total cash flow and rate of return. $($Do not round Intermedlete colculatlons ond enter

your rate of return answer as a percent rounded to $2$ declmal places, e$.$g$.,32\mathrm{.}16.)$

c$.$ What is the cost of equity for ABC and $xYZ?($Do not round Intermedlate calculations

and enter your answers as a percent rounded to $2$ declmal ploces, e$.$g$.,32\mathrm{.}16.)$

d$.$ What is the WACC for ABC and XYZ$?($Do not round Intermedlate colculations and

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

Answer is complete but not entirely correct.