Fresh out of Harvard BusinessSchool, JohnThompson, the new CFO ofJoe's Southern CornbreadCompany, wants to shake things up at the sleepy little food company headquartered inBirmingham, Alabama. The firm is currently an allminusequity firm because"that's the waywe've always doneit." Under pressure from a new group of majorstockholders, however, Walker is considering acquiring some debt(leverage) in an effort to boost earnings per share. The company currently has 8000 shares of common stockoutstanding, but he is thinking about borrowing$16,000 at8% per year and buying back 2000 of those shares. John Thompson is currently living in a world with no taxes.

Refer to the scenario above. If SouthernCornbread's EBIT is$6,000, compare EPS before and after the new debt.

Choose the best Answer below.

A) All equity EPS= $0.787, leveraged equity EPS= $0.75

B) All equity EPS= $4.50, leveraged equity EPS= $3.00

C) All equity EPS= $0.75, leveraged - equity EPS= $0.787

D) All equity EPS= $3.00, leveraged equity EPS= $4.50