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Category > Accounting Posted 30 Apr 2017 My Price 5.00

ABC Co. and XYZ Co. are identical firms

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 %
 
c.

What is the cost of equity for ABC and XYZ? (Round your answers to 2 decimal places. (e.g., 32.16))

  

   Cost of equity
  ABC %  
  XYZ %
 

   

d.

What is the WACC for ABC and XYZ? (Round your answers to 2 decimal places. (e.g., 32.16))

  

   WACC
  ABC %  
  XYZ %
 

Answers

Alpha Geek
(8)
Status NEW Posted 30 Apr 2017 09:04 AM My Price 5.00

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Attachments

file 1493543782-answer1.docx preview (178 words )
A-----------BC -----------Co.----------- an-----------d X-----------YZ -----------Co.----------- ar-----------e i-----------den-----------tic-----------al -----------fir-----------ms -----------in -----------all----------- re-----------spe-----------cts----------- ex-----------cep-----------t f-----------or -----------the-----------ir -----------cap-----------ita-----------l s-----------tru-----------ctu-----------re.----------- AB-----------C i-----------s a-----------ll -----------equ-----------ity----------- fi-----------nan-----------ced----------- wi-----------th -----------$45-----------0,0-----------00 -----------in -----------sto-----------ck.----------- XY-----------Z u-----------ses----------- bo-----------th -----------sto-----------ck -----------and----------- pe-----------rpe-----------tua-----------l d-----------ebt-----------; i-----------ts -----------sto-----------ck -----------is -----------wor-----------th -----------$22-----------5,0-----------00 -----------and----------- th-----------e i-----------nte-----------res-----------t r-----------ate----------- on----------- it-----------s d-----------ebt----------- is----------- 6 -----------per-----------cen-----------t. -----------Bot-----------h f-----------irm-----------s e-----------xpe-----------ct -----------EBI-----------T t-----------o b-----------e $-----------51,-----------000-----------. I-----------gno-----------re -----------tax-----------es.----------- Â----------- Â ----------- a-----------. R-----------ico----------- ow-----------ns -----------$22-----------,50-----------0 w-----------ort-----------h o-----------f X-----------YZA-----------câ‚-----------¬?c-----------s s-----------toc-----------k. -----------Wha-----------t r-----------ate----------- of----------- re-----------tur-----------n i-----------s h-----------e e-----------xpe-----------cti-----------ng?----------- (-----------Rou-----------nd -----------you-----------r a-----------nsw-----------er -----------to -----------2
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