The ABC Company and the XYZ Company are identical in every respect except that ABC is not levered. Financial information for the two firms appears in the following table. All earnings streams are perpetuities, and neither firm pays taxes. Both firms distribute all earnings available to common stockholders immediately. Projected Operating Income Year-end interest on debt Market value of stock Market value of debt ABC $325,000 $2,100,000 XYZ $325,000 $48,000 $1,500,000 $800,000 a. Compare if an investor would be better-off by i) purchasing 5% of XYZ's equity, or ii) purchasing 5% of ABC's equity? Further assume that the investor borrows so that the initial net costs of the two strategies are the same. The investor's cost of borrowed funds is 6% annually. b. Given the two investment strategies in part (a), which will investors choose? When will this process cease? The ABC Company and the XYZ Company are identical in every respect except that ABC is not levered. Financial information for the two firms appears in the following table. All earnings streams are perpetuities, and neither firm pays taxes. Both firms distribute all earnings available to common stockholders immediately. Projected Operating Income Year-end interest on debt Market value of stock Market value of debt ABC $325,000 $2,100,000 XYZ $325,000 $48,000 $1,500,000 $800,000 a. Compare if an investor would be better-off by i) purchasing 5% of XYZ's equity, or ii) purchasing 5% of ABC's equity? Further assume that the investor borrows so that the initial net costs of the two strategies are the same. The investor's cost of borrowed funds is 6% annually. b. Given the two investment strategies in part (a), which will investors choose? When will this process cease