You have been asked to value Barrista Espresso, a chain of espresso coffee shops that have opened on the East Coast of the United States.

The company had earnings before interest and taxes of \($10.50\) million in the most recent year on revenues of \($50\) million. However, the founders of the company had never charged themselves a salary, which would have amounted to \($1\) million if based on comparable companies.

The tax rate is 36% for all firms, and working capital is 10% of revenues.

The capital expenditures in the most recent year amounted to \($4.5\) million, while depreciation was only \($1\) million.

Earnings, revenues, and net capital expenditures are expected to grow 30% a year for five years, and 6% after that forever.

The comparable firms have an average beta of 1.3567 and an average D/E ratio of 13.65%. The average correlation with the market is 0.50. Barrista Espresso is expected to maintain a debt ratio of 12% and face a cost of debt of 8.75%. The risk-free rate is 6%, and the market risk premium is 5.5%.

a. Estimate the value of Barrista Espresso as a firm.

b. Estimate the value of equity in Barrista Espresso.

c. Would your valuation be different if you were valuing the firm for an IPO?