Consider Two Companies in a World with No Taxes That

question 49

Multiple Choice

Consider two companies in a world with no taxes that are alike except in borrowing choices.Company 1 has no debt financing,and Company 2 uses debt financing.The EBIT for both companies is $1,000.Company 1 has 500 shares outstanding and pays no interest.Company 2 has 300 shares outstanding and pays $250 in interest.What is the EPS for each company?

• A)Both companies have an EPS of $2.00.
• B)Both companies have an EPS of $2.67.
• C)Company 1 has an EPS of $2.00 and Company 2 has an EPS of $2.27.
• D)Company 1 has an EPS of $2.00 and Company 2 has an EPS of $2.67.

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Definitions:

Budget Constraints

The limitations on the purchase of goods and services imposed by a budget, reflecting the trade-off between different goods given limited resources.

National Regulators

Authorities or governmental agencies responsible for overseeing and regulating specific industries or sectors within a country to ensure compliance with laws and regulations.

Best Possible Medical Care

High-quality health services that prioritize patient safety, effectiveness, and satisfaction, often incorporating the latest advancements in medical research and technology.

Increased Emphasis

A greater focus or importance placed on a particular subject, area, or policy, signaling a shift in priorities or concerns.