Yellowknife Mining has

90

million shares that are currently trading for

$3

per share and

$90

million worth of debt. The debt is risk free and has an interest rate of

5%,

and the expected return of Yellowknife stock is

13%.

Suppose a mining strike causes the price of Yellowknife stock to fall

28%

to

$2.16

per share. The value of the risk-free debt is unchanged. Assuming there are no taxes and the risk (unlevered beta) of Yellowknife's assets is unchanged, what happens to Yellowknife's equity cost of capital?