I think your sentences are fine. Imagine a longer conversation: "Are you ready to go?" "Can we go there by subway?" "No. We should walk. The subway will take longer, and it's a nice night tonight (天气很好散步). Besides, it's not far from here."

Not quite. The sentence you are looking for is, "Should we take the subway?" You can always go somewhere by subway (as in your original sentence) so the response is a non-sequitur. But it's not always the best way to get somewhere, especially if it's close by. So the question should be posed: if the subway should be taken, not if it can be taken. It can always be taken, but sometimes it shouldn't be taken.

Right and fine. Saying "No" for "Yes, but we won't" is common, even if not technically correct.

Yes However use it’s instead of it is