Two firms, ABC, Inc., and XYZ, Inc., are in the same business. XYZ, Inc., has debt that is viewed by the market as risk-less with a market value of $250 million. ABC, Inc., has no debt. Both firms are expected to generate cash flows of $50 million per year for the foreseeable future and the market value of the equity of ABC, Inc is $500 million.

Estimate the percentage return on equity of XYZ, Inc. Assume there are no taxes, and the risk-free rate is 7.25%.

Answer rating: 100% (QA)

To estimate the percentage return on equity ROE of XYZ Inc we can use the Gordon Gr... View the full answer