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:

Cemetery Superintendents

Individuals responsible for the management and maintenance of cemeteries, ensuring their respectful and proper operation.

Tombstones

Durable markers, typically made of stone, used to indicate the burial site of a deceased individual.

Memento Mori

Any reminder of death.

Epitaph

An inscription, often on a gravestone, in memory of a deceased person.