P$10\mathrm{.}4$ Unlevering the Equity Cost of Capital$-$Low Leverage & High Leverage Companies: Below, we show

the information for two potential comparable companies. Calculate the unlevered cost of capital based on the

following assumptions. Neither company expects its free cash flows to grow.

a$.$ Assume that interest is tax deductible and that the discount rate for all interest tax shields is the unlevered

cost of capital.

b$.$ Assume that interest is tax deductible and that the discount rate for all interest tax shields is the cost of debt.

c$.$ Assume that interest is tax deductible but that the company refinances its debt at the end of each year

$($annual refinancing$).$