Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

i got B right. i just need help on the others 9 10 points ABC Co. and XYZ Co. are identical firms in all respects

i got B right. i just need help on the others image text in transcribed
9 10 points ABC Co. and XYZ Co. are identical firms in all respects except for their capital structure. ABC is all equity financed with $500,000 in stock. XYZ uses both stock and perpetual debt; its stock is worth $250,000 and the interest rate on its debt is 8 percent. Both firms expect EBIT to be $51,000. Ignore taxes. a. Rico owns $25,000 worth of XYZ's 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 Co. and uses homemade leverage. Calculate his total cash flow and rate of return. (Do not round intermediate calculations and enter your rate of return answer as a percent rounded to 2 decimal places, e.g., 32.16.) c. What is the cost of equity for ABC and XYZ? (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) d. What is the WACC for ABC and XYZ? (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) eBook Print References % $ a. Rate of return b. Cash flow Rate of return C. ABC cost of equity XYZ cost of equity d. ABC WACC XYZ WACC 20,000 12.40% % % % %

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Personal Financial Planning

Authors: Randy Billingsley, Lawrence J. Gitman, Michael D. Joehnk

15th Edition

978-0357438480, 0357438485

More Books

Students also viewed these Finance questions

Question

What opportunities exist for raises and advancement?

Answered: 1 week ago