1. Pennington Airlines currently has a beta of 1.30. The companys capital structure consists of $3 million of debt and $7 million of equity. The company is considering changing its capital structure. Under the proposed plan the company would increase its bonds by $2 million and use the proceeds to repurchase common stocks. (So, after the plan is completed, the company will have $5 million of debt and $5 million of equity.) The companys tax rate is 30%. The risk-free rate is 5% and the market risk premium (R_M R_f) is 5%. What is the companys R_S? Compute the business risk premium and financial risk premium and confirm that R_S= R_f + BRPM +FRPM.