a. Richard owns $33,000 worth of XYZ's stock. What rate ofreturn is he expecting?Rate of returnb. Calculate the cash flows and rate of return by investing inABC, and using homemade leverage, how Richard couldgenerate exactly the same?Total cash flowRate of returnABCXYZ%c. What is the cost of equity for ABC? What is it for XYZ?Cost of equityABCXYZ$d. What is the WACC for ABC? For XYZ?WACC% ABC Co. and XYZ Co. are identical firms in all respects exceptfor their capital structure. ABC is all-equity financed with$550,000 in stock. XYZ uses both stock and perpetual debt inequal proportions; its stock is worth $275,000 and the interestrate on its debt is 10 percent. Both firms expect EBIT to be$59,000 every year, forever. Ignore taxes. (Do not roundintermediate calculations. Round the final answers to 2decimal places. Omit $ and % sign in your response.)

We have to apply the MM hypothesis and propositions illustrating the principles that in the absence…

a. Richard owns $33,000 worth of XYZ's stock. What rate of return is he expecting? Rate of return b. Calculate the cash flows and rate of return by investing in ABC, and using homemade leverage, how Richard could generate exactly the same? Total cash flow Rate of return ABC XYZ % C. What is the cost of equity for ABC? What is it for XYZ? Cost of equity ABC XYZ WACC $ % d. What is the WACC for ABC? For XYZ? %

a. Richard owns $33,000 worth of XYZ's stock. What rate of return is he expecting? Rate of return b. Calculate the cash flows and rate of return by investing in ABC, and using homemade leverage, how Richard could generate exactly the same? Total cash flow Rate of return ABC XYZ % C. What is the cost of equity for ABC? What is it for XYZ? Cost of equity ABC XYZ WACC $ % d. What is the WACC for ABC? For XYZ? %

Entrepreneurial Finance

6th Edition

ISBN:9781337635653

Author:Leach

Publisher:Leach

Chapter14: Security Structures And Determining Enterprise Values

Section: Chapter Questions

Problem 1hM

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