The existing capital structure of Star Ltd is as under:

Equity shares of $100$ each $50,00,000$

Retained Earnings $,20,00,000$

$11\%$ Preference Shares $15,00,000$

$8\%$ Debentures $,25,00,000$

Total Capital Employed $1,10,00,000$

The existing EBIT is $17,60,000.$ The company requires a sum of $40,00,000$ to modernise its existing plant, As a result of modernization the existing rate of return will improve by $2\%.$ Corporate tax rate is $25\%.$

Company is considering the foilowing alternatives to raise funds.

a$)$ Issue of equity shares at $100$ per share

b$)$ Issue of $12\%$ preference shares.

c$)$ Issue of $10\%$ debentures.

It is estimated that the $\frac{P}{E}$ ratios in the case of equity, preference and debenture financing could be $25,18$ and $15$ respectively. Which of the above alternative would you consider to be the best and why?