Consider Two Companies That Are Alike Except in Borrowing Choices

question 101

Multiple Choice

Consider two companies that are alike except in borrowing choices. Barry Corp. has no debt financing, and Crawford Corp. uses debt financing. The EBIT for both companies is $100. Barry Corp. has 40 shares outstanding and pays no interest. Crawford Corp. has 30 shares outstanding and pays $25 in interest. What is the EPS for each company?

• A) Both companies have an EPS of $2.50.
• B) Both companies have an EPS of $2.00.
• C) Barry Corp. has an EPS of $2.50 and Crawford Corp. has an EPS of $2.00.
• D) Barry Corp. has an EPS of $2.00 and Crawford Corp. has an EPS of $2.50.

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Definitions:

Minority Position

A standpoint or perspective held by a smaller segment of a group, population, or society, which often contrasts with the majority opinion.

Logical Appeals

A method of persuasion based on evidence and reasoning, often used in rhetoric and argumentation.

Majority Position

The stance or opinion held by the greater number of individuals within a group or society, often influencing group decisions and social norms.

Social Facilitation

The inclination of individuals to execute jobs more effectively or with greater proficiency when they are around other people.