IKEA Holding is considering going public and currently valuing its shares for an initial public offering (IPO). The analyst of IKEA has identified Williams-Sonoma, Inc. (NYSE: WSM) as a comparable firm with similar business characteristics and has estimated the following:

Williams-Sonoma has $2 billion equity and $4 billion debt.

Williams-Sonoma has an equity beta of 0.6 and a debt beta of 0.1. It faces a marginal tax rate of 25%.

The risk-free rate is 5% and the market risk premium is 10%.

Answer questions a) below.

a) Find the unlevered cost of capital for the comparable firm Williams-Sonoma. (Lecture notes pp.31-36)