## (Solution Download) ABC Co. and XYZ Co. are identical firms in all respects except for their capital structure. ABC is a

 ABC Co. and XYZ Co. are identical firms in all respects except for their capital structure. ABC is all equity financed with \$450,000 in stock. XYZ uses both stock and perpetual debt; its stock is worth \$225,000 and the interest rate on its debt is 6 percent. Both firms expect EBIT to be \$51,000. Ignore taxes.

 a. Rico owns \$22,500 worth of XYZAc??cs stock. What rate of return is he expecting? (Round your answer to 2 decimal places. (e.g., 32.16))

 Rate of return %

 b. Suppose Rico invests in ABC Co and uses homemade leverage. Calculate his total cash flow and rate of return. (Round your percentage answer to 2 decimal places. (e.g., 32.16))

 Total cash flow \$ Rate of return %

Solution details:
STATUS
QUALITY
Approved

This question was answered on: Dec 08, 2020

Solution~000652147654108.zip (25.37 KB)

This attachment is locked

We have a ready expert answer for this paper which you can use for in-depth understanding, research editing or paraphrasing. You can buy it or order for a fresh, original and plagiarism-free solution (Deadline assured. Flexible pricing. TurnItIn Report provided)

STATUS

QUALITY

Approved

Dec 08, 2020

EXPERT

Tutor