ABC Co. and XYZ Co. are identical firms in all respects except for their capital structures. ABC is all-equity financed with $425,000 in stock. XYZ uses both stock and perpetual debt; its stock is worth $212,500 and the interest rate on its debt is 6 percent. Both firms expect EBIT to be $48,000. Ignore taxes. (If you can give the result in Excel please?)
a. Richard owns $21,250 worth of XYZ’s stock. What rate of return is he expecting? (Do not round intermediate calculations. answer as a percent rounded to 2 decimal places, e.g., 32.16.)
Rate of return ___ %