Jensen Farms, Inc., plans to borrow $12 million, which it will use to repurchase shares. The following information is given:

• Share price at time of share repurchase=$60
• Earnings after-tax=$6.6 million
• EPS before share repurchase=$3
• Price/Earnings ratio (P/E)=$60/$3=20
• Earnings yield (E/P)=$3/$60=5%
• Shares outstanding=2.2 million
• Planned share repurchase=200,000 shares

1. Calculate the EPS after the share repurchase, assuming the after-tax cost of borrowing is the companys customary after-tax borrowing rate of 5 percent.

2. Calculate the EPS after the share repurchase, assuming the companys borrowing rate increases to 6 percent because of the increased financial risk of borrowing the $12 million.