ABC and XYZ Are Identical Firms in All Respects Except

question 67

Multiple Choice

ABC and XYZ are identical firms in all respects except for their capital structures. ABC is all-equity financed with $530,000 in stock. XYZ has the same total value but uses both stock and perpetual debt; its stock is worth $310,000 and the interest rate on its debt is 7.9 percent. Both firms expect EBIT to be $62,222. Ignore taxes. The cost of equity for ABC is ________ percent and for XYZ it is ________ percent.

• A) 11.74; 9.82
• B) 11.74; 12.48
• C) 11.74; 14.47
• D) 12.09; 9.82
• E) 12.09; 12.48

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Definitions:

Feminist Viewpoint

A perspective or analysis that emphasizes gender equality and critiques societal norms and structures that perpetuate gender disparities.

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