ABC CoAnd XYZ Co

question 69

Multiple Choice

ABC Co.and XYZ Co.are identical firms in all respects except for their capital structure.ABC is all equity financed with $480,000 in stock.XYZ uses both stock and perpetual debt; its stock is worth $240,000 and the interest rate on its debt is 9 percent.Both firms expect EBIT to be $58,400.Ignore taxes.The cost of equity for ABC is _____ percent,and for XYZ it is ______ percent.

• A)12.17; 12.68
• B)12.17; 13.33
• C)12.17; 15.33
• D)12.29; 12.68
• E)12.29; 13.33

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Definitions:

Sympathetic Nervous System

Part of the autonomic nervous system that activates the fight or flight response during perceived threats, by increasing heart rate, blood pressure, and releasing adrenaline.

Parasympathetic Nervous System

A division of the autonomic nervous system responsible for relaxation and conservation of energy in the body.

Flashbacks

Sudden, intense re-experiencings of past events or traumas, often associated with PTSD.

Alarm Phase

The initial reaction of the body's stress response, involving the activation of the sympathetic nervous system.