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.

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Definitions:

Future Events

Occurrences or circumstances that have not yet happened but are anticipated or expected to occur.

Business Transactions

Business transactions are economic events that affect a company's financial position, involving exchanges of value between two parties.

Personal Transactions

Financial activities that are not related to the business and pertain to the personal dealings of an individual or owner.

Owners

Refers to individuals or entities that have legal ownership and control over a business or property.