Question 1 ( 20 points) The following calculations and questions concern Fiona Inc. Fiona currently is a software firm but is considering expanding into producing laptop computers. In its current form, Fiona has a WACC of 9.4% and they have a target. capital structure of 30% debt and 70% equity. Fiona also has a tox rate of 20% a) Fiona inc. realizes that using its current WACC is to evaluate an expansion into this new line of business is not. good practice. Therefore, it has gathered data on two firms that do manufacture laptops to guide their calculation of an appropriate cost of capital. Using this doto, calculate a cost of equity for Fiona's proposed expansion into computer manufacturing. Dell and Hewlett-Packard have a tax rate of 30%. Assume a risk-free rate of 3.0% and a market risk nremium nf 70 io b) If Fiona's pre-tax cost of debt is 6% for their laptop division and their tax rate is 20%, what is the cost of capital (WACC) they should use to evaluate this expansion? (6 points) c) Suppose Fiona has conducted an EBIT-EPS analysis, and the breakeven EBIT is determined to be $20 milition. suppose their average EBIT is $32 million with a standard deviation of $6.5 million. What is the chance Fiona will not earn their breakeven EBIT? What does EBIT-EPS analysis suggest about the risk of choosing debt as opposed to equity? (6 points)