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Aardvark Industries is considering a project that will generate the following free cash flows: You are also provided with the following market value balance sheet and information regarding Aardvark's cost of capital:
-Aardvark's unlevered cost of equity is closest to:
A)10.0%.
B)10.4%.
C)9.5%.
D)9.0%.

Question

Use the information for the question(s)below.
Aardvark Industries is considering a project that will generate the following free cash flows:  You are also provided with the following market value balance sheet and information regarding Aardvark's cost of capital: 
-Aardvark's unlevered cost of equity is closest to:
A)10.0%. 
B)10.4%. 
C)9.5%. 
D)9.0%.

Quizplus · Accepted Answer

The unlevered cost of equity is the cost of equity without the effect of leverage. It is calculated as the risk-free rate plus the equity risk premium. The risk-free rate is currently 5.0%, and the equity risk premium is 5.0%. Therefore, the unlevered cost of equity is 10.0%.

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