Unlevered Cost Of Capital

What is the 'Unlevered Cost Of Capital'

The unlevered cost of capital is an evaluation that uses either a hypothetical or actual debt-free scenario when measuring the cost to a firm to implement a particular capital project. The unlevered cost of capital should illustrate that it is a cheaper alternative than a levered cost of capital investment program. A variation of the cost of capital calculation.

BREAKING DOWN 'Unlevered Cost Of Capital'

Unlevered cost of capital will be a cheaper alternative to a levered cost of capital investment, as there are higher costs associated with the issuing of debt or preferred equity. Some of these marginal costs include, but are not limited, underwriting costs, brokerage fees, and dividend and coupon payments.

RELATED TERMS
  1. Unlevered Beta

    A type of metric that compares the risk of an unlevered company ...
  2. Unlevered Free Cash Flow - UFCF

    A company's cash flow before interest payments are taken into ...
  3. Cost Of Capital

    The required return necessary to make a capital budgeting project, ...
  4. Incremental Cost Of Capital

    A term used in capital budgeting, the incremental cost of capital ...
  5. Cost Of Carry

    Costs incurred as a result of an investment position. These costs ...
  6. Applied Cost

    A term used in cost accounting to denote the cost assigned to ...
Related Articles
  1. Economics

    Explaining Cost Of Capital

    Cost of capital is the cost of funds used to finance a business.
  2. Professionals

    Introduction To Cost Of Capital

    Cost of capital is very important for business budgeting and planning.
  3. Professionals

    Factors Affecting the Cost of Capital

    CFA Level 1 - Factors Affecting the Cost of Capital. Learn about the various factors affecting the cost of capital. Discusses both the controllable and uncontrollable influences facing a company.
  4. Professionals

    Cost Of Capital

    Cost of capital is the required return necessary to make a capital budgeting project, such as building a new factory, worthwhile.
  5. Investing Basics

    Breaking Down Optimal Capital Structure

    An optimal capital structure shows the best balance of debt to equity a company can have in order to minimize its cost of capital.
  6. Investing Basics

    Unlevered Beta

    Learn about how this number provides a measure of how much systematic risk a firm's equity has compared to the market.
  7. Economics

    Understanding Capital

    Capital has a variety of meanings, but it generally refers to financial resources.
  8. Professionals

    Effects of Capitalizing Vs. Expensing

    CFA Level 1 - Effects of Capitalizing vs.Expensing. Learn the effects of capitalizing expenses, instead of incurring them. Shows effects of capitalizing on assets, ratios and profits.
  9. Fundamental Analysis

    Explaining Capitalized Cost

    A capitalized cost is an expense associated with a fixed asset that is added to the basis of that asset and expensed over its depreciable life.
  10. Economics

    What's Economic Capital?

    While regulatory and economic capital use some of the same measurements of risk to determine how much capital a firm should hold in reserve, economic capital uses more realistic measures.
RELATED FAQS
  1. What does a high unlevered free cash flow indicate about a business?

    Learn the difference between levered free cash flow and unlevered free cash flow. Understand what a high unlevered free cash ... Read Answer >>
  2. Why is unlevered free cash flow important when reviewing a company's finances?

    Understand why unlevered free cash flow is important when reviewing a company's finances. Learn the importance of comparing ... Read Answer >>
  3. How should investors interpret unlevered beta?

    Learn what unlevered beta is, how it is calculated, and how investors can interpret the unlevered betas of companies within ... Read Answer >>
  4. What's the difference between levered and unlevered free cash flow?

    The difference between levered and unlevered free cash flow can determine if a business has the means or financial ability ... Read Answer >>
  5. What are the practical uses for unlevered beta?

    Understand the practical uses for a security's unlevered beta, and learn why investors should rely on a security's unlevered ... Read Answer >>
  6. Why do I need to unlever beta when making WACC calculations?

    Dive into weighted average cost of capital calculations, and see why firms both unlever and re-lever beta to compare debt ... Read Answer >>
Hot Definitions
  1. Law Of Demand

    A microeconomic law that states that, all other factors being equal, as the price of a good or service increases, consumer ...
  2. Cost Of Debt

    The effective rate that a company pays on its current debt. This can be measured in either before- or after-tax returns; ...
  3. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  4. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  5. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
  6. Society for Worldwide Interbank Financial Telecommunications ...

    A member-owned cooperative that provides safe and secure financial transactions for its members. Established in 1973, the ...
Trading Center