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Business, 15.04.2020 03:46 wbrandi118

1. ABC and XYZ are two industry competitors, operating under MM perfect capital markets environment. ABC’s market-value-based Debt/Equity ratio is 3/7. Its market-value-based cost of debt, rD, is 7.5% and cost of equity, rE, is 15%. XYZ’s Debt/Equity ratio is 2/3. XYZ’s cost of debt, rD, is 7.875% A. What is the required rate of return on ABC’s assets, rA? B. What is ABC’s weighted average cost of capital (WACC)? Explain. C. What is the required rate of return on XYZ’s assets, rA? Explain. D. What is XYZ’s weighted average cost of capital (WACC)? Explain. E. What is the required rate of return on XYZ’s unlevered equity? Explain. F. What is the required rate of return on XYZ’s levered equity, rE?

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