Sunny Inc. is trying to decide whether investing in Project A is a good idea. This project will last

$5$ years and will not exist after that. Any salvage value will be considered as additional cash flow

to be added to the $5$th year$$s free cash flow. The project requires a $$1,000,000$ initial investment

$($today$)$ and has the following projected free cash flows. The project is expected to have a salvage

value of $$200,000($at the end of $5$th year$)$

Year $1$: $$300,000$

Year $2$: $$350,000$

Year $3$: Nothing

Year $4$: $$450,000$

Year $5$: $$250,000$

Sunny Inc provides the additional information:

D$/$E ratio: $0\mathrm{.}7$

Tax Rate: $20\%$

Most recent bond with a face value of $$1000$ sold for $$950.$ This bond pays yearly coupon

payments and the coupon rate is $6\%.$ The bond has a remaining maturity of $15$ years.

The beta for Sunny Inc. is $2.$ The S&P $500$ has an expected return of $12\%$ and the t$-$bill is $3\%$

$*$DO NOT USE EXCEL FOR THE CALCULATIONS

Q$1)$ Please calculate the Cost of Debt $($not taking taxes into consideration$)$

Q$2)$ Please calculate Cost of Equity $($using the CAPM method$)$

Q$1-$ I am getting the answer $0\mathrm{.}063157$ or $6\mathrm{.}32\%$

Q$2-$ I am getting the answer $\mathrm{.}1827$ or $18\mathrm{.}27\%03+2$ x $(\mathrm{.}12-\mathrm{.}03)$

Am I doing something wrong?