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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 structures. ABC is all-equity financed with $725,000 in stock. XYZ uses both stock and perpetual debt; its stock is worth $362,500 and the interest rate on its debt is 8.2 percent. Both firms expect EBIT to be $74,000. Ignore taxes.

Problem 1: What is the cost of equity for ABC and XYZ?

Problem 2: What is the WACC for ABC and XYZ? (Do not round

Reference no: EM132985542

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