Garnett Corporation is planning to repurchase part of its common stock by issuing corporate debt. As a result, the firms debt-to-equity ratio is expected to rise from 25 percent to 60 percent. The firm currently has $4.8 million worth of debt outstanding. The cost of this debt is 5.4 percent per year. Garnett expects to have an EBIT of $1.75 million per year in perpetuity. Garnett pays a corporate tax rate of 25%.

What would be the value of the firm and the expected return on equity following the announcement?