Help me understand this question using an Excel Spreadsheet (preferably) and or a financial calculator and whatever other means (e.g. algebra) to fully understand this question. A step-by-step analysis and explanation would be appreciated. Thanks!

Question 6

Tom Scott is the owner, president, and primary salesperson for Scott Manufacturing. Because of this, the company's profits are driven by the amount of work Tom does. If he works 40 hours each week, the company's EBIT will be $620,000 per year; if he works a 50-hour week, the company's EBIT will be $765,000 per year. The company is currently worth $3.9 million. The company needs a cash infusion of $2 millionand can issue equity or issue debt with an interest rate of 8 percent. Assume there are no corporate taxes.

a.What are the cash flows to Tom under each scenario?

?(Do not round intermediate calculations and enter your answers in dollars, not millions of dollars, roundedto 2 decimal places, e.g., 1,234,567.)

b.Under which form of financing is Tom likely to work harder?

Option 1: Debt Issue

or

Option 2: Equity Issue

This is the format required (please let me know if the answer I have thus far are right or not; if they are correct please provide an explanation):

a. Debt issue and 40-hour week 460,000 Debt issue and 50-hour week 605,000 Equity issue and 40-hour week 409,831 Equity issue and 50-hour week 505,678 b. Which form of financing is Tom likely to work harder? Debt issue Equity issue