20.

Thurbinar has a stock price of

$22

per share, with

15

million shares outstanding. It also has

$117

million in outstanding debt, with a yield on the debt of

4.7%.

Thurbinar's equity beta is

1.00.

The risk-free rate is

3%,

and the market risk premium is

4%.

Assume its debt cost of capital equals its yield, what is Thurbinar's unlevered cost of capital? Does your answer over or underestimate the true cost of capital?

Group of answer choices

6.40% underestimate

6.40% overestimate

4.60% overestimate

4.70% underestimate