Your companys marketing team has just developed a new product where the company needs to invest $1,000,000. The company has 1.0 debt/equity ratio. The book value of assets is $9,000,000. The company does not have internal funds available and needs to use debt or equity financing.

The options are:

1. Issue bonds. 1,000 bonds with a face value of $1,000 and 8% semi-annual coupon with 5 years to maturity. You think that the bond can be priced in the market for $980.

2. Issue shares and place them at TSX. To finance the new product line, the company can issue 9,000 shares. The last dividend paid was $4.50, the dividends are growing at a constant rate of 2.8%.

3. Take a loan for 5 years at 7% compounded semi-annually.

What is the best financing for the company? Remember that debt costs are expenses and are deducted before taxation. The company tax rate is 30%. Provide calculations to support your argument.