Phoenix Co. is a fast-food company, and has just finished the financial reporting for 2020. The average beta of the publicly traded fast-food chains with which Phoenix Co. is competing is 0.9, and their average debt-equity ratio is 40%. Phoenix Co. plans to maintain its policy of no debt from 2021 to 2023 and to move to the industry average debt ratio after that (i.e. immediately after 2023). Its pre-tax cost of debt is expected to be 5%. The treasury bond rate is 3%. All firms face a tax rate of 30%. The equity risk premium is 6%. In 2020, Phoenix Co. had sales of $4 million, on which it reported EBIT of $1.5 million. The firm had no debt outstanding and expected revenues to grow 15% a year from 2021 to 2023, and 3% a year after that, while pre-tax operating margins (EBIT/Revenues) were expected to remain stable. Capital expenditures, which exceeded depreciation by $0.4 million in 2020, were expected to grow 10% a year from 2021 to 2023, as is depreciation. After 2023, net capital expenditures will grow at the expected inflation rate, 2%. Working capital requirements are negligible. a) Estimate Phoenix Co.'s cost of capital before and after 2023. (6 marks) b) Estimate Phoenix Co.'s firm value. (8 marks) Phoenix Co. is a fast-food company, and has just finished the financial reporting for 2020. The average beta of the publicly traded fast-food chains with which Phoenix Co. is competing is 0.9, and their average debt-equity ratio is 40%. Phoenix Co. plans to maintain its policy of no debt from 2021 to 2023 and to move to the industry average debt ratio after that (i.e. immediately after 2023). Its pre-tax cost of debt is expected to be 5%. The treasury bond rate is 3%. All firms face a tax rate of 30%. The equity risk premium is 6%. In 2020, Phoenix Co. had sales of $4 million, on which it reported EBIT of $1.5 million. The firm had no debt outstanding and expected revenues to grow 15% a year from 2021 to 2023, and 3% a year after that, while pre-tax operating margins (EBIT/Revenues) were expected to remain stable. Capital expenditures, which exceeded depreciation by $0.4 million in 2020, were expected to grow 10% a year from 2021 to 2023, as is depreciation. After 2023, net capital expenditures will grow at the expected inflation rate, 2%. Working capital requirements are negligible. a) Estimate Phoenix Co.'s cost of capital before and after 2023. (6 marks) b) Estimate Phoenix Co.'s firm value. (8 marks)