Q$1.$ Company ABC operates in the car industry. It has issued $5$ million zero$-$coupon bonds; each bond has maturity of $5$ years, face value of $$1000,$ and it is priced at $$900.$ It also has $5$ million common stocks outstanding and each stock is worth $$500$; the risk free rate is $1\%$ and the beta of the stock is $1\mathrm{.}2,$ and the expected return on the market portfolio is $6\%.$ The tax rate is $20\%.$

$($A$)$ What is the weighted average cost of capital for Company ABC $($In computing the cost of equity, use the capital asset pricing model$)?$

$($B$)$ Company ABC is considering the project of staring a new car lineup. It needs an initial cash outlay of $$140,000$ to start the project, and it is expected to generate an after$-$tax cashflow of $$145,000$ one year later. If Company ABC wants to maintain the same capital structure for the project as in its overall firm capital structure $($i$.$e$.$ as in Part A$),$ should it accept or reject the project?

$($C$)$ Company ABC also wants to get involved in a new project of battery production. Because it has never been involved in producing battery, it believes that this new project is slightly riskier than the average risk of the current business; as a result, it will use $2\%$ plus the weighted average cost of the capital for the company as the discount rate for the new project. If the initial cash outlay is $$2$ million and the after$-$tax free cashflow from the new project is $$2\mathrm{.}1$ million in Year $1,$ should Company ABC accept or reject this project?

$($A$)$ WACC $=0\mathrm{.}036.($B$)$ Reject C$)$ Reject