The Wolf's Den Outdoor Gear is considering replacing the equipment it uses to produce tents. The equipment would cost $1.4 million and lower manufacturing costs by an estimated $350,000 a year. The equipment will be depreciated over 8 years using straight-line depreciation to a book value of zero. The equipment will be used for 8 years and thereafter will be worthless. Twenty percent of the total market value of the firm is financed with debt and the remainder with common stock. The current beta of the company is 1.4, the market risk premium is 5.5% , and the prevailing T-Bill rate is 2%.The firm's debt consists of bonds with a coupon rate of 4 percent and are trading at par.The CFO of the firm believes that the bond rating of the firm will not change as long as the proportion of the firm financed with debt remains below 60%.The firm's tax rate is 34 percent.

a. Assuming that the firm finances the equipment with equity should the firm invest in the new equipment, please state your answer clearly and justify it.

b. Assuming that the firm finances the equipment similar to the financing of the overall firm with 20% debt, should the firm invest in the new equipment, please state your answer clearly and justify it.

c. Assuming that the firm finances the equipment with 55% debt and the remainder with equity should the firm invest in the new equipment, please state your answer carefully and justify it

d. What is your recommendation regarding the choice of the financing mix for the new equipment, please state your recommendation carefully and justify it.