Refer to the scenario above. What would the unleveraged and leveraged EPSs look like if EBIT were only $1,200?
A) All-equity EPS = $2.00, leveraged-equity EPS = $1.50
B) All-equity EPS = $3.00, leveraged-equity EPS = $2.00
C) All-equity EPS = $2.00, leveraged-equity EPS = $3.00
D) All-equity EPS = $4.50, leveraged-equity EPS = $3.00
Answer: A
Explanation: A) All-equity EPS = EBIT/600 shares = $1200/600 = $2.00/share.
Leveraged-equity EPS = (EBIT - interest)/400 shares = ($1200 - $600)/400 = $1.50/share.
The stockholders will say, "Mr. Walker, your considerable skills may be of better use in New York or Boston."
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