Tom industry is planning to issue additional ordinary shares. As a result, the firms debt-equity ratio is expected to decrease from 40 percent to 25 percent. The firm currently has 10 million worth of debt outstanding. The cost of this debt is 10 percent per year. Tom industry expects to have an EBIT of 5m per year in perpetuity. Tom industry pays no taxes. Assume Modigliani-Miller propositions hold in this case. Critically discuss the effect on the return on equity.