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What is the cost of equity for abc and xyz

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ABC Co. and XYZ Co. are identical firms in all respects except for their capital structure. ABC is all equity financed with $650,000 in stock. XYZ uses both stock and perpetual debt; its stock is worth $325,000 and the interest rate on its debt is 8 percent. Both firms expect EBIT to be $68,000. Ignore taxes.

a. What is the cost of equity for ABC and XYZ?

b. What is the WACC for ABC and XYZ? (A VERY IMPORTANT QUESTION, MAKE SURE YOU UNDERSTAND ALL STEPS!!!)

Reference no: EM132473410

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