Refer to the scenario above. What would the unleveraged and leveraged EPSs look like if EBIT were $2,400?
A) All-equity EPS = $4.00, leveraged-equity EPS = $4.50
B) All-equity EPS = $3.00, leveraged-equity EPS = $4.00
C) All-equity EPS = $4.00, leveraged-equity EPS = $5.00
D) All-equity EPS = $3.00, leveraged-equity EPS = $3.50
Answer: A
Explanation: A) All-equity EPS = EBIT/600 shares = $2400/600 = $4.00/share.
Leveraged-equity EPS = (EBIT - interest)/400 shares = ($2400 - $600)/400 = $4.50/share.
The stockholders will say, "Well Mr. Walker, you've certainly proven yourself. Have some cornbread."
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