You have been asked to value Adventure whose revenues are $150 million and operating margins are 25 percent. Due to

intense competition in the market, the company is in a zero-growth stage and likely to stay this way in the foreseeable future.

Since the company is not growing, working capital is

constant and capital expenditures are spent only to replace depreciation.

• The company has $100 million in debt outstanding and has a cost of debt equal to 5 percent (the company's bonds trade at par, so interest payments can be computed using the cost of debt).
• The company has 20 million shares outstanding and its stock is trading at $7.50.
• The company has a cost of equity equal to 12 percent. The company faces a tax rate of 40 percent.

If interest tax shields are discounted at the unlevered cost of equity, what is the unlevered cost of equity?