Consider two companies in a world with no taxes that are alike except in borrowing choices. Pacific Corp. has no debt financing, and Atlantic Corp. uses debt financing. The EBIT for both companies is $1,200. Pacific Corp. has 400 shares outstanding and pays no interest. Atlantic Corp. has 275 shares outstanding and pays $100 in interest. What is the EPS for each company?

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Part 1

A.

Pacific Corp. has an EPS of $3.00 and Atlantic Corp. has an EPS of $4.00.

B.

Both companies have an EPS of $3.00.

C.

Both companies have an EPS of $4.00.

D.

Pacific Corp. has an EPS of $4.00 and Atlantic Corp. has an EPS of $3.00.