1. ABC Company and XYZ Company are identical firms in all respects except capital structure. ABC is all-equity financed with $600,000 in stock. XYZ uses bo and perpetual debt; its stock is worth $300,000 and the interest rate on its del percent. Both firms expect BIT to be $67,000. Ignore taxes.
2. Rico owns $36,000 worth of XYZ's stock. What rate of return is he expecting? round intermediate calculations and enter your answer as a percent round decimal places, e.g., 32.16.)
3. Suppose Rico invests in ABC Company and uses homemade leverage. Calcula total cash flow and rate of return. (Do not round intermediate calculations anc your rate of return answer as a percent rounded to 2 decimal places, e.g., 32
4. What is the cost of equity for ABC and XYZ? (Do not round intermediate calcu and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16
5. What is the WACC for ABC and XYZ? (Do not round intermediate calculations enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)
6. Rate of return
7. Cash flow
8. Rate of return
9. ABC cost of equity
10. XYZ cost of equity
11. ABC WACC

2. Book

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ABC Company and XYZ Company are identical firms in all respects except capital structure. ABC is all-equity financed with $600,000 in stock. XYZ uses bo and perpetual debt; its stock is worth $300,000 and the interest rate on its del percent. Both firms expect BIT to be $67,000. Ignore taxes.

1. Rico owns $36,000 worth of XYZ's stock. What rate of return is he expecting? round intermediate calculations and enter your answer as a percent round decimal places, e.g., 32.16.)
2. Suppose Rico invests in ABC Company and uses homemade leverage. Calcula total cash flow and rate of return. (Do not round intermediate calculations anc your rate of return answer as a percent rounded to 2 decimal places, e.g., 32
3. What is the cost of equity for ABC and XYZ? (Do not round intermediate calcu and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16
4. What is the WACC for ABC and XYZ? (Do not round intermediate calculations enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)
5. Rate of return
6. Cash flow
7. Rate of return
8. ABC cost of equity
9. XYZ cost of equity
10. ABC WACC

3. Finch, Incorporated, is debating whether to convert its all-equity capital structure to one that is 30 percent debt. Currently, there are 20,000 shares outstanding, and the price per share is $57. BIT is expected to remain at $62,000 per year forever. The interest rate on new debt is 4 percent, and there are no taxes.

1. Allison, a shareholder of the firm, owns 300 shares of stock. What is her cash flow under the current capital structure, assuming the firm has a dividend payout rate of 100 percent? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
2. What will Allison's cash flow be under the proposed capital structure of the firm? Assume she keeps all 300 of her shares. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
3. Assume that Allison unlevers her shares and re-creates the original capital structure. What is her cash flow now? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Solve:

1. Cash flow
2. Cash flow
3. Cash flow