Compute the cost of unlevered capital

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Reference no: EM132004043

Suppose you observe a mature, unlevered company with a constant cash flow and market value of equity as

EBIT = 100

E = 1000

Compute the cost of unlevered capital, Ru

Suppose you observe another company with identical cash flow, but different capital structure. The cost of debt and equity of this company are as follows

Rd = 5%

Re = 15%

What is the value of debt of this company?

Suppose you decide to invest in the unlevered firm, however you would like your investment have the same return as that of the levered equity. Explain in detail how you would do to achieve your goal.

Reference no: EM132004043

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