Question: Copybold Corporation is a start-up that has a capital structure that calls for a debt/assets ratio of 0.75. There are two possible scenarios with respect

Copybold Corporation is a start-up that has a capital structure that calls for a debt/assets ratio of 0.75. There are two possible scenarios with respect to the firm's operations: Feast and Famine. The Feast scenario has a 60 percent probability of occurring, and the forecast earnings before interest and taxes (EBIT) in this scenario is $60,000. The Famine scenario has a 40 percent chance of occurring, and the EBIT is expected to be $20,000. Further, the cost of debt for this capital structure will be 12 percent. The firm will have $400,000 in total assets, and it will face a marginal tax rate of 40 percent. The company has 10,000 outstanding shares. What is the difference between the earnings per share (EPS) forecasts for Feast and Famine?

$1.48

$2.40

$0.98

$0.62

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