Capitals Co is considering an opportunity to produce an innovative component which, when fitted into motor vehicle engines, Will enable them to utilize fuel more efficiently. The component manufacturing process is an entirely new business for Capitals Co. Developing this process over a period of four years and then selling the productions rights at the end of four years to another company may be attractive. Captials Co has 120 million shares trading at $1.50 with equity beta of 1.2. Its loans have a current value of $ 140 million and an average cost of debt after tax of 5%. It’s seems the capital structure of the company is unlikely to change significantly following the investment. Tisa Co is a company which manufacturing electronic parts for cars including the production of component very similar to the one being considered by Capitals and provide car maintenance service, Tisa co's equity beta is 1.40, and asset beta for its car maintenance service business is 1.08. Tisa Co has 400 million shares trading at $1.20 each. Its debt finance consisting of redeemable bond in seven years have a current value of $96 million and paying interest rate 3.8%. 80% of Tisa Cos debt and 75% of equity supporting the car parts manufacturing business. The two companies pay annual corporation tax at a rate of 30%. The current base rate is 3% and the market return is estimated at 8% Question 1) Ke for Capital Co. to implement the car parts process is ( ) 2) WACC Capital Co. to implement the car parts process is ( )