You plan to invest in one of two home delivery pizza companies, High and Low, that were recently founded and are about to commence operations. They are identical except for their use of debt (wd) and the interest rates on their debt--High uses more debt and thus must pay a higher interest rate. Based on the data given below, how much higher or lower will High's expected EPS be versus that of Low, i.e., what is EPSHigh - EPSLow?

Question

Quizplus · Accepted Answer

High's use of more debt increases its financial leverage, which can amplify its earnings per share (EPS) compared to Low, despite the higher interest rate. The difference in EPS is calculated to be $0.60.

You Plan to Invest in One of Two Home Delivery