Lever Brothers Has a Debt Ratio (Debt to Assets)of 60

Multiple Choice

Lever Brothers has a debt ratio (debt to assets) of 60%.Management is wondering if its current capital structure is too aggressive.Lever Brothers's present EBIT is $3 million,and profits available to common shareholders are $1,440,000,with 228,571 shares of common stock outstanding.If the firm were to instead have a debt ratio of 20%,reduced interest expense would cause profits available to stockholders to increase to $1,680,000,but 457,143 common shares would be outstanding.What is the difference in EPS at a debt ratio of 20% versus 60%?

A) $-1.76
B) $-2.63
C) $-3.14
D) $-4.37