A firm has an unlevered cost of equity of rho $=11\mathrm{.}25\%.$ The cost of debt is $5\%.$ The tax rate is $T=0\%.$ EBIT $=5,625,000($constant

and perpetual$).$ There are $1M$ shares outstanding.

I EPS for the unlevered firm is $$5\mathrm{.}625$

II If the firm issues $$20,000,000$ in debt, then EPS for the levered firm is $$7\mathrm{.}71$

III EPS for the levered firm is greater because Net Income is higher.

a$.$ I only

b$.$ II and III

C$.$ I, II$,$ and III

d$.$ I and II

e$.$ I and III