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ABC Company and XYZ Company are identical firms in all respects except for their capital structure. ABC is all-equity financed with $625,000 in stock. XYZ

ABC Company and XYZ Company are identical firms in all respects except for their capital structure. ABC is all-equity financed with $625,000 in stock. XYZ uses both stock and perpetual debt; its stock is worth $312,500 and the interest rate on its debt is 5.5 percent. Both firms expect EBIT to be $68,000. Ignore taxes. a. Rico owns $37,500 worth of XYZs stock. What rate of return is he expecting? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. Suppose Rico invests in ABC Company and uses homemade leverage. Calculate his total cash flow and rate of return. (Do not round intermediate calculations and

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