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 $3,500,000

District Corp. has 400,000 shares outstanding and pays no interest. Energy Corp. has 250,000 shares outstanding and pays $500,000 in interest. What is the EPS for each company?
A) Both companies have an EPS of $8.75.
B) Both companies have an EPS of $12.00.
C) District Corp. has an EPS of $12.00 and Energy Corp. has an EPS of $8.75.
D) District Corp. has an EPS of $8.75 and Energy Corp. has an EPS of $12.00.

Answer: D
Explanation: D)
District Corp.: Net Income = EBIT - interest = $3,500,000 - 0 = $3,500,000.
EPS = = = $8.75.
Energy Corp.: Net Income = EBIT - interest = $3,500,000 - $500,000 = $3,000,000.
EPS = = = $12.00.