Consider Two Companies in a World with No Taxes That

question 121

Multiple Choice

Consider two companies in a world with no taxes that are alike except in borrowing choices.District Corp.has no debt financing,and Energy Corp.uses debt financing.The EBIT for both companies is $3,500,000.District Corp.has 400,000 shares outstanding and pays no interest.Energy Corp.has 250,000 shares outstanding and pays $500,000 in interest.What is the EPS for each company?

• A)Both companies have an EPS of $8.75.
• B)Both companies have an EPS of $12.00.
• C)District Corp.has an EPS of $12.00 and Energy Corp.has an EPS of $8.75.
• D)District Corp.has an EPS of $8.75 and Energy Corp.has an EPS of $12.00.

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Definitions:

Epinephrine

A hormone and neurotransmitter also known as adrenaline; it increases heart rate, constricts blood vessels, and dilates air passages.

Norepinephrine

A neurotransmitter and hormone involved in the body's fight or flight response, affecting blood pressure, heart rate, and sugar metabolism.

Sympathetic

Pertaining to the part of the autonomic nervous system that typically prepares the body for intense physical activity and is often referred to as the fight-or-flight response.

Parasympathetic

Pertaining to the division of the autonomic nervous system that conserves energy as it slows the heart rate, increases intestinal and gland activity, and relaxes sphincter muscles.