Question
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.
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)
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