You have a good friend that works at the City of London as a financial analyst and he tells you: I am always looking for companies with higher expected EPS, as these are the best companies to add to my portfolio! Do you agree with her? Justify your answer by analysing the effect of leverage on EPS (assume for this case that leverage increases expected EPS) and on the share price of a company if (i) you live in a world without taxes; and (ii) if you live in a world with taxes. Is the company better off in both cases?

Question 14 You have a good friend that works at the City of London as a financial analyst and he tells you: I am always looking for companies with higher expected EPS, as these are the best companies to add to my portfolio!" Do you agree with her? Justify your answer by analysing the effect of leverage on EPS (assume for this case that leverage increases expected EPS) and on the share price of a company if (i) you live in a world without taxes; and (ii) if you live in a world with taxes. Is the company better off in both cases