Abc co. and xyz co. are identical firms in all respects except for their capital structure. abc is all equity financed with $775,000 in stock. xyz uses both stock and perpetual debt; its stock is worth $387,500 and the interest rate on its debt is 5.8 percent. both firms expect ebit to be $77,000. ignore taxes.

a) richard owns $58,125 worth of xyz’s stock. what rate of return is he expecting? (do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e. g., 32.16.)

b) suppose richard invests in abc co. and uses homemade leverage to match his cash flow in part (a). calculate his total cash flow and rate of return. (do not round intermediate calculations. enter your return answer as a percent rounded to 2 decimal places, e. g., 32.16.)

c) what is the cost of equity for abc and xyz? (do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e. g., 32.16.)

d) what is the wacc for abc and xyz? (do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e. g., 32.16.)

9. tax types: taxes are classified based on whether they are applied directly to income, called direct taxes, or to some other measurable performance characteristic of the firm, called indirect taxes. identify each of the following as a “direct tax,” an “indirect tax,” or something else: a. corporate income tax paid by a japanese subsidiary on its operating income b. royalties paid to saudi arabia for oil extracted and shipped to world markets c. interest received by a u.s. parent on bank deposits held in london d. interest received by a u.s. parent on a loan to a subsidiary in mexico e. principal repayment received by u.s. parent from belgium on a loan to a wholly owned subsidiary in belgium f. excise tax paid on cigarettes manufactured and sold within the united states g. property taxes paid on the corporate headquarters building in seattle h. a direct contribution to the international committee of the red cross for refugee relief i. deferred income tax, shown as a deduction on the u.s. parent’s consolidated income tax j. withholding taxes withheld by germany on dividends paid to a united kingdom parent corporation