When choosing a financing alternative, many companies compare the impact on earnings per share of each alternative being considered. Since the level of EBIT is not affected by the financing choice, a given level of EBIT is assumed and, for this level, profits before taxes, net income, and earnings per share are calculated under each financing option. The option producing the highest earnings per share at the assumed EBIT level is preferred on this basis. Do you think this approach yields the best financing alternative?
