Logo
Home Study Material Contact Search
AI Chat FREE
  1. business
  2. finance
  3. abc co. and xyz co. are identical firms in all res

ABC Co. and XYZ Co. are identical firms in all respects except for their capital structure....

90.2K

Verified Solution

Question

Finance

ABC Co. and XYZ Co. are identical firms in all respects exceptfor their capital structure. ABC is all equity financed with$650,000 in stock. XYZ uses both stock and perpetual debt; itsstock is worth $325,000 and the interest rate on its debt is 6.5percent. Both firms expect EBIT to be $71,000. Ignore taxes.

1. Rico owns $39,000 worth of XYZ’s stock. What rate of returnis he expecting?

2. What is the WACC for ABC and XYZ?

Answer & Explanation Solved by verified expert
3.6 Ratings (399 Votes)
    See Answer
Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:
  • Unlimited Question Access with detailed Answers
  • Zin AI - 3 Million Words
  • 10 Dall-E 3 Images
  • 20 Plot Generations
  • Conversation with Dialogue Memory
  • No Ads, Ever!
  • Access to Our Best AI Platform: Zin AI - Your personal assistant for all your inquiries!
Become a Member

Transcribed Image Text

ABC Co. and XYZ Co. are identical firms in all respects exceptfor their capital structure. ABC is all equity financed with$650,000 in stock. XYZ uses both stock and perpetual debt; itsstock is worth $325,000 and the interest rate on its debt is 6.5percent. Both firms expect EBIT to be $71,000. Ignore taxes.1. Rico owns $39,000 worth of XYZ’s stock. What rate of returnis he expecting?2. What is the WACC for ABC and XYZ?

Other questions asked by students

Q

Find the distances: A) Between ?1=?2+2?,?1+?,?3??and ?2=?4,?5?3?,1+4?? . B) Between the planes 2???+5?=0 and 2???+5?=5 . C) From...

Basic Math
Q

Which of the given is not a requirement for the validity of the chi‑square goodness‑of‑fit test? 1)...

Statistics
Q

Data Table 2. Reviewing Compounds. #1 Compound Name Compound Name Are #1 geometric isomers, structural isomers, or not isomers? #2 Compound Name Compound...

Chemistry
Q

Why do  perpendicular bisectors of the three sides of a triangle all meet at a single point?...

Basic Math
Q

The complex power consumed by a constant voltage load is given by P jQ Where...

Physics
Q

72 Figure Rhombus FGHI H Question 10 Read the question and enter your response in...

Geometry
Q

What is the probability that score pulled at random is less than 48.4?Express your answer...

Basic Math
Q

Please show work Production and Purchases Budgets in Units At the end of business...

Accounting
Q

A firm has total debt of $1,050 and a debt-equity ratio of .29. What is...

Accounting
Q

If operating income could be manipulated by allocating over-or underapplied overhead, why don't GAAP always...

Accounting
Q

Your boss is considering a 4-year investment project. If the project is accepted, it would...

Finance
Q

FIN 302N Quic Assume your company is looking at project that will have cash flows...

Finance