Calculate the interest coverage ratio for options A and B.

Option A

Equity: Issue 8,000 common shares with a current market price of $40 each.

Option B

Debt: Take on $320,000 of debt with a 8% interest and $31,000 principle payments annually

Information given prior to new funding

- Current debt outstanding is $900,000 with 5% interest and $85,000 principle payments annually

- Current equity is $830,000 with 20,000 common shares and $1.90 dividend per share annually

- EBIT is expected to be $640,000

- Tax rate 20%

- Industry average for interest coverage ratio is 11.0.