Jones Inc. needs $100,000 to finance the purchase of new equipment. The finance manager is considering two options:

1. Borrowing the funds over a five-year term and paying interest at the rate of 6% per year, or

2. Issuing 6,000 shares of $1 cumulative preferred shares.

The equipment is estimated to have a life of five years and no residual value. Income before interest expense and tax is expected to be $80,000. The tax rate is assumed to be 25%.

Required 

Using the elements of critical thinking described on the inside front cover, respond.