You are CEO of a high-growth technology firm.You plan to raise$100 million to fund a planned expansion by issuing either new shares or new debt. With the expansion, you expect earnings next year of $34 million. The firm currently has13million shares outstanding, with a price of $98 per share. Assume perfect capital markets.

a. If you raise the $100 million by selling new shares, what will the forecast for next year's earnings per share be?

b. If you raise the $100 million by issuing new debt with an interest rate of 9%, what will the forecast for next year's earnings per share be?

c. What is the firm's forward P/E ratio (that is, the share price divided by the expected earnings for the coming year) if it issues equity? What is the firm's forward P/E ratio if it issues debt? How can you explain thedifference?

	Ratio
Forward P/E ratio for equity		(Round to the nearest integer.)
Forward P/E ratio for debt		(Round to the nearest integer.)

How can you explain the difference? (Select the best choice below.)

A.The lower P/E ratio is justified because with leverage, the EPS will decrease at a faster rate.

B.The higher P/E ratio is justified because with leverage, the EPS will decrease at a faster rate.

C.The higher P/E ratio is justified because with leverage, EPS will grow at a faster rate.

D.The lower P/E ratio is justified because with leverage, EPS will grow at a faster rate.