ABC Co. and XYZ Co. are identical firms in all respects except for their capital structure. ABC is all-equity financed with $700,000 in stock. XYZ uses both stock and perpetual debt in equal proportions; its stock is worth $350.000 and the interest rate on its debt is 10 percent. Both firms expect EBIT to be $73,000 every year, forever. Ignore taxes. (Do not round intermediate calculations. Round the final answers to 2 decimal places. Omit $ and % sign in your response.) a. Richard owns $52.500 worth of XYZ 's stock.
What rate of return is he expecting?
