The Severn Company plans to raise a net amount of $270 million to finance new equipment in early 2022. Two alternatives

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The Severn Company plans to raise a net amount of $270 millionto finance new equipment in early 2022. Two alternatives are beingconsidered: Common stock may be sold to net $60 per share, or bondsyielding 11% may be issued. The balance sheet and income statementof the Severn Company prior to financing are as follows:
The probability distribution for annual sales is as follows:
Assuming that EBIT equals 15% of sales, calculate earnings pershare (EPS) under the debt financing and the stock financingalternatives at each possible sales level. Write out your answercompletely. For example, 0.00013 million should be entered as 130.Do not round intermediate calculations. Round your answers to thenearest cent.
Calculate expected EPS under both debt and stock financingalternatives. Write out your answer completely. For example,0.00013 million should be entered as 130. Do not round intermediatecalculations. Round your answers to the nearest cent.
Expected EPS under the debt financing: $
Expected EPS under the stock financing: $
Calculate σEPS under both debt and stockfinancing alternatives. Write out your answer completely. Forexample, 0.00013 million should be entered as 130. Do not roundintermediate calculations. Round your answers to the nearestcent.
σEPS under the debtfinancing: $
σEPS under the stockfinancing: $
Calculate the debt-to-capital ratio and thetimes-interest-earned (TIE) ratio at the expected sales level undereach alternative. The old debt will remain outstanding.(Hint: Notes payable should be included in both thenumerator and the denominator of the debt-to-capital ratio.) Do notround intermediate calculations. Round your answers to two decimalplaces.
Under the debt financing:
The debt ratio: %
Times-interest-earned ratio: ×
Under the stock financing:
The debt ratio: %
Times-interest-earned ratio: ×
Which financing method do you recommend?
debt or equity