ABC CoAnd XYZ Co

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