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5._If interest is paid m times per year, then the per period interest rate equals the :

You have the following information for GeeWhiz Inc. Assume markets are semi-strong form efficient. There are no taxes, and the assumptions of M&M hold. All returns are annual and all cashflows are perpetual.

Return on debt is 7%

Debt ratio is 1:6

No. of shares is 200,000

price per share is $5

earnings per share (EPS) is $1

Suppose the company announced it was going to change its debt-equity ratio to 3:5 by issuing debt and using the money to buy back equity. Assume that the cost of debt remains unchanged after the change in capital structure.

What happens to the EPS of the shareholders in this newly levered company?