You are trying to estimate the cost of capital for La Coste, an upscale specialty retailer. The firm is in only one business, specialty retailing: comparable firms have an average published beta of 1.2. an average debt ratio of 30% and an average tax rate of 40%. The firm has provided you with the following information: The regression beta is 0.85 with a standard error of 0.5. The firm's bonds are rated A, and the default spread for A rated bond is 0.015. The company plans to maintain its current debt ratio of 20% The Treasury bond rate is 0.062 and the equity risk premium is 0.084 The tax rate for La Costa is 40% What is the average unlevered beta for the comparable firms? Estimate La Coste's beta based upon the comparable firms (.e. Bottom up beta) What is La Coste's before tax cost of debt? What is La Coste's after tax cost of debt? Use beta calculated in part two to calculate La Coste's cost of equity? What is the WACC? You are the owner of a building materials outlet, and you are considering adding a garden supplies section to your store. The cost of the expansion will be $1.5 million, to be depreciated over its 4-year life, using straight line depreciation to an expected salvage value of $500,000 at the end of the 4th year. The garden supplies are expected to generate revenues of $600,000 in the 1st year, $ 650,000 in the 2nd year, $700,000 in the 3rd and 4th years. The expenses of operating the garden supplies section are expected to be 40% of revenues each year and the tax rate is 35%. Working capital requirements are expected to be 10% of revenues (made at the beginning of each period). a) Estimate the total initial investment for this project.(1 mark) b) Estimate the operating free cash flows to the firm (FCFF) on the project for the next 4 years. (6 marks)