trying to answer #9

and Long-Term Financial Policy c. Suppose the company does convert, but Allison prefers the current allery original capital structure. 17. 9. ture is irrelevant. Homemade Leverage and WACC [L01] ABC Co. and XYZ Co. are idee ital structure. Show how she could unlever her shares of stock to d. Using your answer to part (c), explain why the company's choice of capital firms in all respects except for their capital structure. ABC is all-equity fino with $720.000 in stock. XYZ uses both stock and perpetual debt; its stock is wa $360,000 and the interest rate on its debt is 7 percent. Both firms expect EBITOS $73,000. Ignore taxes. a. Rico owns $43,500 worth of XYZ's stock. What rate of return is he expecting b. Show how Rico could generate exactly the same cash flows and rate of return by investing in ABC and using homemade leverage. c. What is the cost of equity for ABC? What is it for XYZ? d. What is the WACC for ABC? For XYZ? What principle have you illustrated! 10. M&M [LO1] Thrice Corp. uses no debt. The weighted average cost of capital is of the equity is $16.3 million and there are