Thurbinar has a stock price of

$16

per share, with

16

million shares outstanding. It also has

$101

million in outstanding debt. Thurbinar's equity beta is

1.00.

The risk-free rate is

3%,

and the market risk premium is

4%.

Assume Thurbinar's debt has a beta of zero. What is Thurbinar's unlevered cost of capital? Does your answer over or underestimate the true cost of capital?

Group of answer choices

9.60%; underestimate

9.60%; overestimate

5.87%; overestimate

5.87%; underestimate