Unlevered cost of capital is best defined as:

Multiple Choice

• The cost of capital of a firm that has no debt.

• The equity risk that comes from the nature of the firm's operating activities.

• Theory that a firm borrows up to the point where the tax benefit from an extra dollar in debt is exactly equal to the cost that comes from the increased probability of financial distress.

• The costs that are directly associated with bankruptcy, such as legal and administrative expenses.

• The tax saving attained by a firm from interest expense.