RedBerry Inc. is considering the launch of a new subsidiary in China as they believe that they will be able to generate great profits in this thriving economy in the next $10$ years. They have spent $$1,050,000$ in research on this new project and they would like to estimate the value that this undertaking will add to the entergrise. RedBerry does not believe that this new project will add any significant risk to the cuttent operations.The new division is expected to generate $$3$ million in revenue each year and generate a profit margin of $30\%.$ There will also be an upfront investment in equipment of $$600,000$ which will depreciate on a straight line basis, and an initial working capital investment of $$150,000$ is required.The liabilities and shareholders' equity extract of the most recent balance sheet is as follows$($Ir thousands$)$Current Liabilities$-50000$Debt$-100000$Equity$300000$Total Liabilities and stockholders equity$-450000$The company has an issued share capital of $35$ million shares which are currently being sold on the market for $$4$ per share. The Company currently carries $12$ percent sem$-$annual coupon bonds issued at par on its books. The bonds are due to mature in $20$ years and currently sell for $86\%$ of face value.Additionalinformation is provided below.The company's stock is $1\mathrm{.}4$ times as risky as the market stockalThe T$-$bill rate in the market is $10$ percent, and there is a market risk premium for the stock ot $5$ percentThe company's marginal tax rate is $40$ percent.Calculate the Cost of equity using the capital asset pricing model without the use of a financial calculator.