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.District Corp.has no debt financing,and Energy Corp.uses debt financing.The EBIT for both companies is $2,500,000.District Corp.has 500,000 shares outstanding and pays no interest.Energy Corp.has 350,000 shares outstanding and pays $1,000,000 in interest.What is the EPS for each company?

A) Both companies have an EPS of $5.71.
B) Both companies have an EPS of $5.00.
C) District Corp.has an EPS of $5.71 and Energy Corp.has an EPS of $5.00.
D) District Corp.has an EPS of $5.00 and Energy Corp.has an EPS of $4.29.