he financial manager of FDE Co. is considering a project. It will generate just one cash flow in year 1, but with some uncertainty. It has 40% of chance to generate $6 million in year 1, 45% of chance to generate $2 million, and 15% to generate $0. The project requires $2.8 million investment today. The project has the average risk level of the company. You also have some information on the company. FDEs cost of debt is 4.5%. Beta of debt is 0.2. The average estimate for the beta of FDEs industry is 1.3. The ratio of debt to overall company value is 40%. Assume market risk premium is 8.5%, risk free rate is 0.5% and corporate tax rate is 21%. Please clearly show the inputs and equations used to derive the results to get full credits.

(a). Whats cost of equity for FDE Co. by using CAPM model? (in %, keep four decimals)

(b). Whats the after-tax WACC of FDE Co. based you answer in (a)? (in %, keep four decimals)

(c). Whats NPV of the project based on your answers in (a) and (b) ? (keep four decimals)