Tortuga, Inc. is looking to raise $4 million for new equipment to enhance the efficiency of its operations. The firm currently is capitalized with 250,000 shares of equity at a market price of $35 per share and also has $2,000,000 of debt with an interest rate of 9%. The company believes that with the new capital they could achieve an EBIT of $1,500,000. Assume new equity could be issued at current market price and that new debt would still carry a 9% coupon. The company has a 25% marginal tax rate. Should Tortuga issue Equity or Debt?

Equity, because EPS will be $2.13

Debt, because EPS will be $2.88

Equity, because EPS will be $2.72

Debt, because EPS will be $1.95