Consider Two Companies in a World with No Taxes That

question 42

Multiple Choice

Consider two companies in a world with no taxes 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.