Lenows Drug Stores and Halls Pharmaceuticals are competitors in the discount drug chain store business....
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Finance
Lenows Drug Stores and Halls Pharmaceuticals are competitors in the discount drug chain store business. The separate capital structures for Lenow and Hall are presented here.
Lenow
Hall
Debt @ 10%
$
290,000
Debt @ 10%
$
580,000
Common stock, $10 par
580,000
Common stock, $10 par
290,000
Total
$
870,000
Total
$
870,000
Common shares
58,000
Common shares
29,000
a. Complete the following table given earnings before interest and taxes of $33,000, $87,000, and $88,000. Assume the tax rate is 30 percent. (Negative amounts should be indicated by parentheses or a minus sign.Round your answers to 2 decimal places.)
What is the relation ship between
EBIT
Total Assets
EBIT/TA
%
Lenow EPS
Hall EPS
The EPS of the two firms
$33,000
$870,000
3.79
%
$87,000
$870,000
10.00
%
$88,000
$870,000
10.11
%
b-1. What is the EBIT/TA rate when the firm's have equal EPS? EBIT/TA rate ____%
b-2. What is the cost of debt? 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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