What rate of return is she expecting

Assignment Help Financial Management

Reference no: EM131911960

ABC co. and XYZ Co. are identical firms in all respect except for their capital structure. ABC is all equity financed with $780,000 in stock. XYZ uses both stock and perpetual debt; its stock is worth $390,000 and the interest rate on its debt is 8 percent. Both firms expect EBIT to be $87,000. Ignore taxes.

a) Allison own $48,750 worth of XYZ’s stock. What rate of return is she expecting?

b) Show how Allison could generate exactly the same cash flows and rate of return by investing in ABC and using homemade leverage

c) What is the cost of equity for ABC? What is it for XYZ?

d) What is the WACC for ABC? For XYZ? What principle have you illustrated?

Reference no: EM131911960

Questions Cloud

Impact of training programs on employees productivity : I need 3 literature reviews about the impact of training programs on employees productivity, 2 literature review about the impact of work facilities.

Analyze the positives and negatives of energy sources : Analyze the positives and negatives of energy sources for decision making at the community level. Which would you recommend the town invest in today? Why?

Explain the budget cycle and process : Write a description of how management should use an activity based budget instead of an operating budget.

What is the first expected dividend on stock : If you require a 14% rate of return, what is the first expected dividend on this stock?

What rate of return is she expecting : ABC co. and XYZ Co. are identical firms in all respect except for their capital structure. What rate of return is she expecting?

How would you conclusion change for the winter months : How would you conclusion change for the winter months, if bad weather makes it likely for traffic jams on the highway to increase to 6 days per month?

Find the subgame perfect equilibrium : Draw a game tree for this game between the executive and Nature; find the subgame perfect equilibrium.

Explain what is the current attack rate of the disease : Explain what is the current attack rate of the disease? What information do we need about the people who are ill? Draw epi curve on graph paper.

Discuss the refugee resettlement program : You are working with a refugee resettlement program. How would you support your clients to understand the Australian legal system?

User Account

All Pages