Tortuga, Inc. is looking to raise $750,000 for new equipment to enhance the efficiency of its operations. The firm currently is capitalized with 200,000 shares of equity at a market price of $12 per share and also has $1,000,000 of debt with an interest rate of 7%. The company believes that with the new capital they could achieve an EBIT of $250,000. Assume new equity could be issued at current market price and that new debt would still carry a 7% coupon. The company has a 25% marginal tax rate.

Equity Debt

EBIT $250,000 $250,000

-interest

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EBT

-tax

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Net income

shares

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EPS

Using the template above, should Tortuga issue Equity or Debt?