ABC Co. and XYZ Co. are identical firms in all respects except for their capital structure. ABC is all-equity financed with $540,000 in stock. XYZ uses both stock and perpetual debt; its stock is worth $270,000 and the interest rate on its debt is 10 percent. Both firms expect EBIT to be $73,000. Ignore taxes.
Rate of return % 17.04
What is the cost of equity for ABC? What is it for XYZ? Round your answers to 2 decimal places.
Cost of equity
ABC %
XYZ %