Tortuga, Inc. is looking to raise $2 million for new equipment to enhance the efficiency of its operations. The firm currently is capitalized with 100,000 shares of equity at a market price of $42 per share and also has $1,000,000 of debt with an interest rate of 8%. The company believes that with the new capital they could achieve an EBIT of $500,000. Assume new equity could be issued at current market price and that new debt would still carry a 8% coupon. The company has a 25% marginal tax rate. Should Tortuga issue Equity or Debt?

Group of answer choices

Equity, because EPS will be $2.72

Debt, because EPS will be $2.88

Equity, because EPS will be $2.13

Debt, because EPS will be $1.95