Your firm is planning to invest in an automated packaging plant. Harburtin Industries is an all-equity firm that specializes in this business. Suppose Harburtin's equity beta is 0.86, the risk-free rate is 5 %, and the market risk premium is 5 %.
a. If your firm's project is all-equity financed, estimate its cost of capital. The project's cost of capital is __________%. (Round to two decimal places.)
b. Assume Thurbinar's debt has a beta of zero. Estimate Thurbinar's unlevered beta. Use the unlevered beta and the CAPM to estimate Thurbinar's unlevered cost of capital. Thurbinar's unlevered beta is . (Round to two decimal places.) Thurbinar's unlevered cost of capital is __________%. (Round to two decimal places.)
c. Estimate Thurbinar's equity cost of capital using the CAPM. Then assume its debt cost of capital equals its yield and using these results, estimate Thurbinar's unlevered cost of capital.
Thurbinar's equity cost of capital is ____________%. (Round to two decimal places.)
Thurbinar's unlevered cost of capital is ___________%. (Round to two decimal places.)