Consider Two Companies in a World with No Taxes That

Multiple Choice

Consider two companies in a world with no taxes that are alike except in borrowing choices.Company 1 has no debt financing,and Company 2 uses debt financing.The EBIT for both companies is $1,000.Company 1 has 500 shares outstanding and pays no interest.Company 2 has 300 shares outstanding and pays $250 in interest.What is the EPS for each company?

A) Both companies have an EPS of $2.00.
B) Both companies have an EPS of $2.67.
C) Company 1 has an EPS of $2.00 and Company 2 has an EPS of $2.27.
D) Company 1 has an EPS of $2.00 and Company 2 has an EPS of $2.67.