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:

U.S. Trade Deficit

The situation where the total value of goods and services the United States imports from other countries is more than the total value of goods and services it exports to those countries.

Net Exports

The difference between a country's total exports and total imports, representing the value of goods and services exported minus the value of goods and services imported.

NAFTA

The North American Free Trade Agreement, a treaty entered into by the United States, Canada, and Mexico; it was superseded by the United States-Mexico-Canada Agreement (USMCA) in 2020.

Trade Deficits

A situation in which a country's imports of goods and services exceed its exports, leading to more money flowing out of the country than coming in.