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What is the cost of equity for abc and xyz

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Reference no: EM132474027

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?

Reference no: EM132474027

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