Your firm is planning to invest in an automated packaging plant. Harburtin Industries is an$$ all$-$equity firm that specializes in this business. Suppose Harburtin$\text{'}$s equity beta is $0\mathrm{.}87,$ the$$ risk$-$free rate is $4\%,$ and the market risk premium is $6\%.$

Part $1$

a$.$ If your$$ firm's project is$$ all$-$equity financed, estimate its cost of capital. Harburtin$\text{'}$s cost of capital is

enter your response here $\_\_\_\%.($Round to two decimal$$ places.$)$

Part $2$

b$.$ Thurbinar$\text{'}$s unlevered beta is $\_\_\_.($Round to two decimal$$ places.$)$

Part $3$

Thurbinar$\text{'}$s unlevered cost of capital is $\_\_\_\%.($Round to two decimal$$ places.$)$

Part $4$

c$.$ Estimate Thurbinar$\text{'}$s equity cost of capital using the CAPM. Then assume its debt cost of capital equals its yield and using these$$ results, estimate Thurbinar$\text{'}$s unlevered cost of capital.

Thurbinar$\text{'}$s equity cost of capital is $\_\_\_\%.($Round to two decimal$$ places.$)$

Part $5$

Thurbinar$\text{'}$s unlevered cost of capital is $\_\_\_\%.($Round to two decimal$$ places.$)$

Part $6$

d$.$ Explain the difference between your estimate in part $($b$)$ and part $($c$).($Select the best choice$$ below.$)$

A$.$ In the first$$ case, we assumed the debt had a beta of $0,$ so we assumed the cost of debt was the riskless$$ rate, while in the second$$ case, we assumed the cost of debt was the yield on debt.

B$.$The answers differ because we are using approximations rather than formulas that hold exactly.

C$.$The answers are actually the$$ same; any difference is just due to rounding errors.

D$.$We should have gotten the same$$ answer, the problem is the numbers in the problem are not consistent.

Part $7$

e$.$ You decide to average your results in part $($b$)$ and part $($c$),$ and then average this result with your estimate from part $($a$).$ What is your estimate for the cost of capital of your$$ firm's project?

The average unlevered cost of capital from part $($b$)$ and part $($c$)$ is $\_\_\_\%.($Round to two decimal$$ places.$)$

Part $8$

The average unlevered cost of capital from part $($b$)$ and part $($c$)$ with part $($a$)$ is $\_\_\_\%.($Round to two decimal$$ places.$)$