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.
Answer: A
Explanation: A)
Barry Corp.: Net Income = EBIT - interest = $100 - 0 = $100.
EPS = = = $2.50.
Crawford Corp.: Net Income = EBIT - interest = $100 - $25 = $75.
EPS = = = $2.50.
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