You plan to invest in one of two home delivery pizza companies, High and Low, that were recently founded and are about to commence operations. They are identical except for their use of debt (w_d) and the interest rates on their debt--High uses more debt and thus must pay a higher interest rate. Both companies are small, so they are not subject to the interest deduction limitation. Based on the data given below, how much higher or lower will High's expected EPS be versus that of Low, i.e., what is EPS_High EPS_Low? Do not round your intermediate calculations.

Applicable to Both Firms			Firm High's Data			Firm Low's Data
Capital	$3,000,000		wd	70%		wd	20%
EBIT	$690,000		Shares	90,000		Shares	240,000
Tax rate	25%		Int. rate	12%		Int. rate	10%

a. $1.68

b. $1.04

c. $2.15

d. $3.59

e. $2.24

Dyson Inc. currently finances with 20.0% debt (i.e., w_d = 20%), but its new CFO is considering changing the capital structure to w_d = 59.5% by issuing additional bonds and using the proceeds to repurchase and retire common shares so the percentage of common equity in the capital structure w_c = 1 w_ddeclines. Given the data shown below, by how much would this recapitalization change the firm's cost of equity? Do not round your intermediate calculations. (Hint: You must unlever the current beta and then use the unlevered beta to solve the problem.)

Risk-free rate, rRF	5.00%		Tax rate, T	25%
Market risk prem., RPM	3.00%		Current wd	20.0%
Current beta, bL1	1.30		Target wd	59.5%

a. 8.01 p.p.

b. 0.62 p.p.

c. 5.00 p.p.

d. 4.30 p.p.

e. 3.00 p.p.