Blair Company has $\$ 5$ million in total assets. The company's assets are financed with $\$ 1$ million of debt and $\$ 4$ million of common equity. The company's income statement is summarized below:

The company wants to increase its assets by $\$ 1$ million, and it plans to finance this increase by issuing $\$ 1$ million in new debt. This action will double the company's interest expense, but its operating income will remain at 20 percent of its total assets, and its average tax rate will remain at 40 percent. What is the net effect if the company takes this action?

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EBIT $1,000,000 Interest Expense $100,000 EBT Taxes (40%) Net Income $900,000 $360,000 $540,000