Panda CO. and Bibo Co. are identical firms in all respects except for their capital structure. Panda is all-equity financed with $900,000 in stock. Bibo uses both stock and perpetual debt; its stock is worth $400,000 and the interest rate on its debt is 10 percent. Both firms expect EBIT to be $90,000. Ignore taxes.
a- What is the cost of equity for Panda? What is it for Bibo?
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