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What is the weighted average cost of capital

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Two public companies (Jack Co. and Jill Co.) operate in the same industry, will generate exactly the same operating profit, and have identical net operating assets.

Question 1: What is the weighted average cost of capital for each company? Which company will have a lower stock price?

                                                        Jack Co.                         Jill Co.

Total Debt                                  $1,000                         $0

Total Shareholder Equity                $1,000                    $2,000

Cost of Debt                                   4.0%                    2.5%

Cost of Equity                                   6.0%                  4.5%

Reference no: EM132484756

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