Fantastic!, a fast-food company selling roasted pork in outlets. It had sales of $4 million, on which it reported EBIT of $1.2 million in 2019. The firm had no debt outstanding and expected revenues to grow 15% a year from 2020 to 2022, and 2.5% a year after that, while pre-tax operating margins (EBIT/Revenues) were expected to remain stable. Capital expenditures, which exceeded depreciation by $0.5 million in 2019, were expected to grow 10% a year from 2020 to 2022, as is depreciation. After 2022, net capital expenditures will grow at the expected inflation rate, 1%. Working capital requirements are negligible. The average beta of the publicly traded fast-food chains with which Fantastic! is competing is 0.95, and their average debt-equity ratio is 25%. Fantastic! plans to maintain its policy of no debt until 2022 and to move to the industry average debt ratio after that (i.e. immediately after 2022). Its pre-tax cost of debt is expected to be 6.5%. The treasury bond rate is 3%. All firms face a tax rate of 30%. The equity risk premium is 5.5%.

1) Estimate Fantastic!s total cost of capital before and after 2022.