Consider two firms that are identical in every way except for capital structure: one is levered and one is all equity. The levered company has debt with a face value of $1,000 and a coupon rate of 11% (the yield on the debt is also 11%). The debt is perpetual and pays annual coupons. The levered company has 320 shares outstanding while the all-equity company has 400 shares outstanding. What is each firms' earnings per share if EBIT is $1,200? Assume a tax rate of 40%.

• EPS (levered) = 2.04, EPS (all equity) = 3.00

• EPS (levered) = 2.25, EPS (all equity) = 1.80

• EPS (levered) = 2.25, EPS (all equity) = 3.00

• EPS (levered) = 2.04, EPS (all equity) = 1.80