Consider the case of Dan Harris, Chief Financial Officer (CFO) ofElectronic Business Services (EBS), which has been analyzing thepossibilities to carry out a significant expansion of the company.To achieve it, EBS plans to raise $50 million from investorsexternal. One possibility is to obtain the funds by sellingEBS shares. Because of the company's risk, Dan estimates thatThose who invest capital will require a risk premium of 10%, forabove the risk-free interest rate, which is 5%. That is, theThe company's cost of equity is 15%. However,some senior EBS executives have claimed that instead of carrying outAfter Dan's proposal, the company should consider requesting a$50 million loan. EBS has not borrowed before and, givenyour favorable balance sheet, you should get it at a rate ofinterest of 6%.

a. Does the low interest rate on the debt make getting the loan a better financing choice for EBS?

b. If the company borrows the money, will this affect the NPV of the expansion and thus change the value of the company and its share price?