Consider Two Companies in a World with No Taxes That

question 4

Multiple Choice

Consider two companies in a world with no taxes that are alike except in borrowing choices.Pacific Corp.has no debt financing,and Atlantic Corp.uses debt financing.The EBIT for both companies is $900.Pacific Corp.has 300 shares outstanding and pays no interest.Atlantic Corp.has 200 shares outstanding and pays $200 in interest.What is the EPS for each company?

• A)Both companies have an EPS of $3.50.
• B)Both companies have an EPS of $3.00.
• C)Pacific Corp.has an EPS of $3.50 and Atlantic Corp.has an EPS of $3.00.
• D)Pacific Corp.has an EPS of $3.00 and Atlantic Corp.has an EPS of $3.50.

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Definitions:

Fins

External appendages on fish and some other aquatic animals used for propulsion, steering, and balance in the water.

Fatigue Effect

A decrease in performance or efficiency due to tiredness, stress, or exhaustion.

Sports Drink

A beverage designed to help athletes rehydrate, as well as replenish electrolytes, sugar, and other nutrients during or after exercise.

Physical Performance

The ability of an individual to perform physical tasks or activities, often measured in terms of strength, speed, endurance, or coordination.