Question

23. The unlevered cost of capital is:
(A) the cost of capital for a firm with no equity in its capital structure.
(B) the cost of capital for a firm with no debt in its capital structure.
(C) the interest tax shield times pretax net income.
(D) the cost of preferred stock for a firm with equal parts debt and common stock in its capital structure.​

Answer 1

Explanation:

The unlevered cost of capital is:

the cost of capital for a firm with no equity in its capital structure.

the cost of capital for a firm with no debt in its capital structure.

the interest tax shield times pretax net income.

the cost of preferred stock for a firm with equal parts debt and common stock in its capital structure.

equal to the profit margin for a firm with some debt in its capital structure

Answer 2

Answer:

The correct option is (A) the cost of capital for a firm with no equity in its capital structure.

Explanation:

• Unlevered cost of capital is an analysis that determines a company's cost to carry out a specific capital project by employing either a hypothetical or real debt-free scenario.
• Unlevered cost of capital compares the project's capital expenditures without the use of debt to an investment with a levered cost of capital.
• Unlevered Cost of Capital = Risk-Free Rate + Unlevered Beta is the formula for determining this cost (Market Risk Premium).
• Unlevered Beta is the measure of an investment's volatility in relation to the market or other businesses.
• Generally speaking, the unlevered cost of capital is more than the leveraged cost of capital.

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