Company ABC expects next years operating earnings (EBIT) to be $2 million. Suppose it has total assets of $10 million and no debt. It currently has 1 million shares outstanding with a book value of $10 per share. It is planning a capital restructuring to achieve a debt-to-book equity ratio of 1. Based on yields on similar debt in the marketplace, the company estimates that it will have to pay 6% interest rate if it issues bonds. The income tax rate applicable to the company is 25%.

Question: Applying Modigliani and Miller capital structure theory to this example, appraise whether the firm is doing the right thing by moving from an all-equity asset base to a debt equity ratio of 1.