Bob's is a retail chain of specialty hardware stores. The firm has $21,000$ shares of stock outstanding that are currently valued at $$63$ a share. Firm's Beta is $1\mathrm{.}2.$ The risk$-$free rate is $1\%$ and the market risk premium is $6\mathrm{.}4\%.$ Firm expects to pay an annual dividend of $$3$ in one year. Dividend is expected to grow indefinitely at $5\%$ annually. The firm also has $500$ coupon bonds outstanding that have a face value of $$1,000,$ a market price of $$1,168,$ mature in $6$ years and have a YTM of $5\mathrm{.}648\%.$ The tax rate is $35\%.$

Part $1$

Attempt $\frac{1}{10}$ for $10$ pts$.$

$($A possible BONUS question in the Final Exam could be as follows: assuming CAPM computes the correct stock return, then does the current stock price reflect over$-$ or under$-$valuation? NO NEED to answer here$)$

What is the company's weighted average cost of capital if CAPM is the right method for cost of equity?

Part $2$

Attempt $\frac{1}{10}$ for $10$ pts$.$

The firm is considering expanding by building a new superstore. The risks associated with the superstore are comparable to the risks of the firm's current operations. The superstore will require an initial investment of $$12\mathrm{.}3$ million and is expected to produce cash inflows of $$1\mathrm{.}3$ million annually over its $10-$year life. The initial investment will be depreciated on a straight line basis over the life of the project. At the end of the $10$ years, the firm expects to sell the superstore for $$6\mathrm{.}7$ million. What is the NPV of superstore project? Should the firm accept or reject the project?