Working with a partner, assume that a firm needs $10 million in additional long-term capital. It currently has no debt and $40 million in equity. The firm’s options are issuing a 10-year bond (with an interest rate of 7 percent) or selling $10 million in new equity. You expect next year’s earnings will be $5 million before interest and taxes. (The firm’s tax rate is 35 percent.) Prepare a memo outlining the advantages and disadvantages of debt financing and equity financing. Using the numbers provided, prepare a numerical illustration of leverage.