A firm with no debt has 175,000 shares outstanding worth $20 per share. Its book value of equity is $2m. The firm suddenly announces it will issue $1m of 10%-interest debt, use the proceeds to repurchase equity, and maintain this level of debt indefinitely (i.e. roll over the debt). Assume financial markets are perfect except for a 30% corporate tax rate. What are the firms market and book values of equity before and after the repurchase? Do shareholders gain or lose in the transaction?