As a consultant to First Responder Inc., you have obtained the following data (dollars in millions). The company plans to pay out all of its earnings as dividends, hence 8 0. Also, no net new investment in operating capital is needed because growth is zero. The CFO believes that a move from zero debt to 80.0% debt would cause the cost of equity to increase from 10.0% to 12.0%, and the interest rate on the new debt would be 9.0%. What would the firm's total market value be if it makes this change? Hints: Find the FCF, which is equal to NOPAT = EBIT(1 - T) because no new operating capital is needed, and then divide by (WACC - g). Do not round your intermediate calculations. $800 12.00% 9.00% Tax rate New Wd 40.0% 80.0% Oper income (EBIT) New cost of equity (rs) Interest rate (ra) O a. $7,357 b. $5,929 OC. $7,143 d. $5,357 e. $8,000 Your girlfriend plans to start a new company to make a new type of cat litter. Her father will finance the operation, but she will have to pay him back. You are helping her, and the issue now is how to finance the company, with equity only or with a mix of debt and equity. The price per unit will be $10.00 regardless of how the firm is financed. The expected fixed and variable operating costs, along with other information, are shown below. How much higher or lower will the firm's expected EPS be if it uses some debt rather than only equity, i.e., what is EPSL- EPSU? Do not round your intermediate calculations. 0% Debt, U 290,000 $10.00 $1,000,000 $3.50 $2,500,000 250,000 0.00% 60% Debt, 290,000 $10.00 $1,000,000 $3.50 $2,500,000 100,000 60.00% $1,500,000 $1,000,000 10.00% 35.00% Expected unit sales Price per unit Fixed costs Variable cost/unit Required investment Shares issued at $10/share % Debt Debt, $ Equity, $ Interest rate Tax rate O a. $02.35 b. $03.10 OC. $02.60 O d. $02.85 e. $02.48 $0 $2,500,000 NA 35.00%