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Unida Systems has 33 million shares outstanding trading for $11 per share. In addition, Unida has $109 million in outstanding debt. Suppose Unida's equity cost of capital is 14%, its debt cost of capital is 8%, and the corporate tax rate is 31%.

a. What is Unida's unlevered cost of capital?
b. What is Unida's after-tax debt cost of capital?
c. What is Unida's weighted average cost of capital?

User Alikonda
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1 Answer

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Final answer:

While we can calculate the after-tax debt cost of capital for Unida Systems (5.52%), we do not have sufficient data to accurately compute Unida's unlevered cost of capital or weighted average cost of capital.

Step-by-step explanation:

To address the question regarding Unida Systems' financial metrics, we must calculate the unlevered cost of capital, after-tax debt cost of capital, and weighted average cost of capital (WACC).

Unlevered Cost of Capital - This metric is not directly given, but it reflects the cost of capital for a company without debt. It is, however, the same as the equity cost of capital if the company has no debt, as debt influences the overall cost of capital.

After-Tax Debt Cost of Capital -

The after-tax debt cost of capital can be calculated using the formula: After-tax Cost of Debt = Cost of Debt ((1 - Tax Rate)).

For Unida, it's 8% ((1 - 0.31)), which equals 5.52%.

Weighted Average Cost of Capital (WACC) -

WACC is calculated using the proportions of debt and equity in the firm's capital structure, the costs of those sources, and the corporate tax rate.

Unfortunately, the provided material and reference information do not contain enough data to calculate the WACC accurately. To do so, we would need the market values of debt and equity, the cost for each, and the tax rate, which we partially have.