Fanny Nanny Weight Monitors Inc. is considering two financial alternatives for financing a major

expansion program. Under either alternative, EBIT is expected to be $$12\mathrm{.}5$ million. Currently the

firm's capital structure consists of $2$ million shares of common stock and $$15$ million in $6\%$ long$-$

term bonds. Under the debt financing alternative $$8$ million in $4\%$ long$-$term bonds will be sold and

under the equity financing alternative the firm would sell $150,000$ shares of common stock. The $\frac{P}{E}$

under the debt alternative would be $21$ and the $\frac{P}{E}$ under the equity alternative would be $22.$ The

firm's marginal tax rate is $40\%.$ Which alternative would produce the higher stock price?

debt$-$stock price of $$57\mathrm{.}36$

debt$-$stock price of $$70\mathrm{.}98$

equity$-$stock price of $$71\mathrm{.}28$

equity$-$stock price of $$85\mathrm{.}32$