Lenow Drug Stores and Hall Pharmaceuticals are competitors in the discount drug chain store business. The separate capital structures for Lenow and Hall are presented here. Hall Lenow Debte 18% Common stock, $10 par Total Common shares $170,889 Debt @ 18% 340,899 Common stock, $10 par $510,880 Total 34,889 Conmon shares $348,689 178,089 $510,880 17,899 a. Complete the following table given earnings before interest and taxes of $21,000, $51,000 and $62,000. Assume the tax rate is percent. (Negative amounts should be indicated by parentheses or a minus sign. Round your answers to 2 decimal places.) What is the relationship between the EPS of the two firms? EHITTA Lenow EPS Hall EPS ERIT 21,000 51,000 62,000 Total Assets $ 510,000 $ 510,000 $ 510,000 b-1. What is the EBIT/TA rate when the firms have equal EPS? EBIT/TArte b-1. What is the EBIT/TA rate when the firms have equal EPS? ESTITA de 1 5 b-2. What is the cost of debt? Cost of debt b-3. State the relationship between earnings per share and the level of EBIT. EPS is unaffected by financial leverage when the pre-tax return on assets (EBIT/TA) the cost of debt c. If the cost of debt went up to 12 percent and all other factors remained equal, what would be the break-even level for EBIT Break-even level
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