You Plan to Invest in One of Two Home Delivery

Multiple Choice

You plan to invest in one of two home delivery pizza companies, High and Low, that were recently founded and are about to commence operations. They are identical except for their use of debt (wd) and the interest rates on their debt-High uses more debt and thus must pay a higher interest rate. Based on the data given below, how much higher or lower will High's expected EPS be versus that of Low, i.e., what is EPSHigh ? EPSLow? $\begin{array}{c}\begin{array}{cc}\underline{\text { Applicable to Both Firms} } \\\text { Capital } \quad \$ 3,000,000 \\\text { EBIT } \quad \$ 500,000 \\\text { Tax rate } \quad 35 \%\end{array}\begin{array}{cc}\underline{\text { Firm High's Data }} \\\mathrm{w}_{\mathrm{d}} \quad 70 \% \\\text { Shares } \quad 90,000 \\\text { Int. rate } \quad 12 \% \end{array}\begin{array}{cc}\underline{\text { Firm Low's Data} }\\\mathrm{w}_{\mathrm{d}} \quad 20 \% \\\text { Shares } \quad 240,000 \\\text { Int. rate } \quad 10 \% \end{array}\end{array}$

A) $0.49
B) $0.54
C) $0.60
D) $0.66
E) $0.73