Marcus owns and manages OLK, which is an all-equity firm. If he works 40 hours a week, the firm's annual EBIT will be $96,000. If he increases his hours to 45 a week, EBIT will increase to $108,000. The firm has a current value of $926,000. Marcus needs $250,000 to fund a new project. The firm can borrow the needed funds at an interest rate of 6 percent, or it can issue equity. Ignore taxes. Marcus will prefer

Multiple Choice

debt with a 40-hour week as that option provides him with the highest cash flow.

debt with a 45-hour week as his cash flow will be $7,959 higher than if he works 45 hours and shares his equity.

equity with a 45-hour week as his cash flow will be $85,041.

debt with a 45-hour week as his cash flow will be $11,000 greater than his next best option.

equity with a 40-hour week as that option provides him with the lowest cash flow.